Recurrent Neural Networks with more flexible memory: better predictions than rough volatility

Damien Challet and Vincent Ragel (vincent.ragel@centralesupelec.fr)
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Vincent Ragel: MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec - Université Paris-Saclay

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Abstract: We extend recurrent neural networks to include several flexible timescales for each dimension of their output, which mechanically improves their abilities to account for processes with long memory or with highly disparate time scales. We compare the ability of vanilla and extended long short term memory networks (LSTMs) to predict asset price volatility, known to have a long memory. Generally, the number of epochs needed to train extended LSTMs is divided by two, while the variation of validation and test losses among models with the same hyperparameters is much smaller. We also show that the model with the smallest validation loss systemically outperforms rough volatility predictions by about 20% when trained and tested on a dataset with multiple time series.

Keywords: Time series; Long memory; Recurrent Neural Networks; Rough Volatility; Volatility modelling (search for similar items in EconPapers)
Date: 2023-07-18
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Working Paper: Recurrent Neural Networks with more flexible memory: better predictions than rough volatility (2023)
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