Modeling Financial Time Series with Artificial Neural Networks

Financial time series convey the decisions and actions of a population of human actors over time. Econometric and regressive models have been developed in the past decades for analyzing these time series. More recently, biologically inspired artificial neural network models have been shown to overcome some of the main challenges of traditional techniques by better exploiting the non-linear, non-stationary, and oscillatory nature of noisy, chaotic human interactions. This review paper explores the options, benefits, and weaknesses of the various forms of artificial neural networks as compared with regression techniques in the field of financial time series analysis.

AIRSTREAM: A Neural Network Model of Auditory Scene Analysis and Source Segregation

Multiple sound sources often contain harmonics that overlap and may be degraded by environmental noise. The auditory system is capable of teasing apart these sources into distinct mental objects, or streams. Such an "auditory scene analysis" enables the brain to solve the cocktail party problem. A neural network model of auditory scene analysis, called the AIRSTREAM model, is presented to propose how the brain accomplishes this feat. The model clarifies how the frequency components that correspond to a give acoustic source may be coherently grouped together into distinct streams based on pitch and spatial cues. The model also clarifies how multiple streams may be distinguishes and seperated by the brain. Streams are formed as spectral-pitch resonances that emerge through feedback interactions between frequency-specific spectral representaion of a sound source and its pitch. First, the model transforms a sound into a spatial pattern of frequency-specific activation across a spectral stream layer. The sound has multiple parallel representations at this layer. A sound's spectral representation activates a bottom-up filter that is sensitive to harmonics of the sound's pitch. The filter activates a pitch category which, in turn, activate a top-down expectation that allows one voice or instrument to be tracked through a noisy multiple source environment. Spectral components are suppressed if they do not match harmonics of the top-down expectation that is read-out by the selected pitch, thereby allowing another stream to capture these components, as in the "old-plus-new-heuristic" of Bregman. Multiple simultaneously occuring spectral-pitch resonances can hereby emerge. These resonance and matching mechanisms are specialized versions of Adaptive Resonance Theory, or ART, which clarifies how pitch representations can self-organize durin learning of harmonic bottom-up filters and top-down expectations. The model also clarifies how spatial location cues can help to disambiguate two sources with similar spectral cures. Data are simulated from psychophysical grouping experiments, such as how a tone sweeping upwards in frequency creates a bounce percept by grouping with a downward sweeping tone due to proximity in frequency, even if noise replaces the tones at their interection point. Illusory auditory percepts are also simulated, such as the auditory continuity illusion of a tone continuing through a noise burst even if the tone is not present during the noise, and the scale illusion of Deutsch whereby downward and upward scales presented alternately to the two ears are regrouped based on frequency proximity, leading to a bounce percept. Since related sorts of resonances have been used to quantitatively simulate psychophysical data about speech perception, the model strengthens the hypothesis the ART-like mechanisms are used at multiple levels of the auditory system. Proposals for developing the model to explain more complex streaming data are also provided.

Neural Network and Bioinformatic Methods for Predicting HIV-1 Protease Inhibitor Resistance

This article presents a new method for predicting viral resistance to seven protease inhibitors from the HIV-1 genotype, and for identifying the positions in the protease gene at which the specific nature of the mutation affects resistance. The neural network Analog ARTMAP predicts protease inhibitor resistance from viral genotypes. A feature selection method detects genetic positions that contribute to resistance both alone and through interactions with other positions. This method has identified positions 35, 37, 62, and 77, where traditional feature selection methods have not detected a contribution to resistance. At several positions in the protease gene, mutations confer differing degress of resistance, depending on the specific amino acid to which the sequence has mutated. To find these positions, an Amino Acid Space is introduced to represent genes in a vector space that captures the functional similarity between amino acid pairs. Feature selection identifies several new positions, including 36, 37, and 43, with amino acid-specific contributions to resistance. Analog ARTMAP networks applied to inputs that represent specific amino acids at these positions perform better than networks that use only mutation locations.

Fusion Artmap: A Neural Network Architecture for Multi-Channel Data Fusion and Classification

Fusion ARTMAP is a self-organizing neural network architecture for multi-channel, or multi-sensor, data fusion. Single-channel Fusion ARTMAP is functionally equivalent to Fuzzy ART during unsupervised learning and to Fuzzy ARTMAP during supervised learning. The network has a symmetric organization such that each channel can be dynamically configured to serve as either a data input or a teaching input to the system. An ART module forms a compressed recognition code within each channel. These codes, in turn, become inputs to a single ART system that organizes the global recognition code. When a predictive error occurs, a process called paraellel match tracking simultaneously raises vigilances in multiple ART modules until reset is triggered in one of them. Parallel match tracking hereby resets only that portion of the recognition code with the poorest match, or minimum predictive confidence. This internally controlled selective reset process is a type of credit assignment that creates a parsimoniously connected learned network. Fusion ARTMAP's multi-channel coding is illustrated by simulations of the Quadruped Mammal database.

A Self-Organizing Neural Network for Learning a Body-Centered Invariant Representation of 3-D Target Position

This paper describes a self-organizing neural network that rapidly learns a body-centered representation of 3-D target positions. This representation remains invariant under head and eye movements, and is a key component of sensory-motor systems for producing motor equivalent reaches to targets (Bullock, Grossberg, and Guenther, 1993).

ART-EMAP: A Neural Network Architecture for Learning and Prediction by Evidence Accumulation

This paper introduces ART-EMAP, a neural architecture that uses spatial and temporal evidence accumulation to extend the capabilities of fuzzy ARTMAP. ART-EMAP combines supervised and unsupervised learning and a medium-term memory process to accomplish stable pattern category recognition in a noisy input environment. The ART-EMAP system features (i) distributed pattern registration at a view category field; (ii) a decision criterion for mapping between view and object categories which can delay categorization of ambiguous objects and trigger an evidence accumulation process when faced with a low confidence prediction; (iii) a process that accumulates evidence at a medium-term memory (MTM) field; and (iv) an unsupervised learning algorithm to fine-tune performance after a limited initial period of supervised network training. ART-EMAP dynamics are illustrated with a benchmark simulation example. Applications include 3-D object recognition from a series of ambiguous 2-D views.

ART-EMAP: A Neural Network Architecture for Object Recognition by Evidence Accumulation

A new neural network architecture is introduced for the recognition of pattern classes after supervised and unsupervised learning. Applications include spatio-temporal image understanding and prediction and 3-D object recognition from a series of ambiguous 2-D views. The architecture, called ART-EMAP, achieves a synthesis of adaptive resonance theory (ART) and spatial and temporal evidence integration for dynamic predictive mapping (EMAP). ART-EMAP extends the capabilities of fuzzy ARTMAP in four incremental stages. Stage 1 introduces distributed pattern representation at a view category field. Stage 2 adds a decision criterion to the mapping between view and object categories, delaying identification of ambiguous objects when faced with a low confidence prediction. Stage 3 augments the system with a field where evidence accumulates in medium-term memory (MTM). Stage 4 adds an unsupervised learning process to fine-tune performance after the limited initial period of supervised network training. Each ART-EMAP stage is illustrated with a benchmark simulation example, using both noisy and noise-free data. A concluding set of simulations demonstrate ART-EMAP performance on a difficult 3-D object recognition problem.

Self-Organizing Grammar Induction Using a Neural Network Model

This paper presents a self-organizing, real-time, hierarchical neural network model of sequential processing, and shows how it can be used to induce recognition codes corresponding to word categories and elementary grammatical structures. The model, first introduced in Mannes (1992), learns to recognize, store, and recall sequences of unitized patterns in a stable manner, either using short-term memory alone, or using long-term memory weights. Memory capacity is only limited by the number of nodes provided. Sequences are mapped to unitized patterns, making the model suitable for hierarchical operation. By using multiple modules arranged in a hierarchy and a simple mapping between output of lower levels and the input of higher levels, the induction of codes representing word category and simple phrase structures is an emergent property of the model. Simulation results are reported to illustrate this behavior.

Speaker Normalization Methods for Vowel Cognition: Comparative Analysis Using Neural Network and Nearest Neighbor Classifiers

Intrinsic and extrinsic speaker normalization methods are systematically compared using a neural network (fuzzy ARTMAP) and L1 and L2 K-Nearest Neighbor (K-NN) categorizers trained and tested on disjoint sets of speakers of the Peterson-Barney vowel database. Intrinsic methods include one nonscaled, four psychophysical scales (bark, bark with endcorrection, mel, ERB), and three log scales, each tested on four combinations of F0 , F1, F2, F3. Extrinsic methods include four speaker adaptation schemes, each combined with the 32 intrinsic methods: centroid subtraction across all frequencies (CS), centroid subtraction for each frequency (CSi), linear scale (LS), and linear transformation (LT). ARTMAP and KNN show similar trends, with K-NN performing better, but requiring about ten times as much memory. The optimal intrinsic normalization method is bark scale, or bark with endcorrection, using the differences between all frequencies (Diff All). The order of performance for the extrinsic methods is LT, CSi, LS, and CS, with fuzzy ARTMAP performing best using bark scale with Diff All; and K-NN choosing psychophysical measures for all except CSi.

Navite: A Neural Network System For Sensory-Based Robot Navigation

A neural network system, NAVITE, for incremental trajectory generation and obstacle avoidance is presented. Unlike other approaches, the system is effective in unstructured environments. Multimodal inforrnation from visual and range data is used for obstacle detection and to eliminate uncertainty in the measurements. Optimal paths are computed without explicitly optimizing cost functions, therefore reducing computational expenses. Simulations of a planar mobile robot (including the dynamic characteristics of the plant) in obstacle-free and object avoidance trajectories are presented. The system can be extended to incorporate global map information into the local decision-making process.

The What-And-Where Filter: A Spatial Mapping Neural Network for Object Recognition and Image Understanding

The What-and-Where filter forms part of a neural network architecture for spatial mapping, object recognition, and image understanding. The Where fllter responds to an image figure that has been separated from its background. It generates a spatial map whose cell activations simultaneously represent the position, orientation, ancl size of all tbe figures in a scene (where they are). This spatial map may he used to direct spatially localized attention to these image features. A multiscale array of oriented detectors, followed by competitve and interpolative interactions between position, orientation, and size scales, is used to define the Where filter. This analysis discloses several issues that need to be dealt with by a spatial mapping system that is based upon oriented filters, such as the role of cliff filters with and without normalization, the double peak problem of maximum orientation across size scale, and the different self-similar interpolation properties across orientation than across size scale. Several computationally efficient Where filters are proposed. The Where filter rnay be used for parallel transformation of multiple image figures into invariant representations that are insensitive to the figures' original position, orientation, and size. These invariant figural representations form part of a system devoted to attentive object learning and recognition (what it is). Unlike some alternative models where serial search for a target occurs, a What and Where representation can he used to rapidly search in parallel for a desired target in a scene. Such a representation can also be used to learn multidimensional representations of objects and their spatial relationships for purposes of image understanding. The What-and-Where filter is inspired by neurobiological data showing that a Where processing stream in the cerebral cortex is used for attentive spatial localization and orientation, whereas a What processing stream is used for attentive object learning and recognition.

A Neural Network Architecture for Autonomous Learning, Recognition, and Prediction in a Nonstationary World

In a constantly changing world, humans are adapted to alternate routinely between attending to familiar objects and testing hypotheses about novel ones. We can rapidly learn to recognize and narne novel objects without unselectively disrupting our memories of familiar ones. We can notice fine details that differentiate nearly identical objects and generalize across broad classes of dissimilar objects. This chapter describes a class of self-organizing neural network architectures--called ARTMAP-- that are capable of fast, yet stable, on-line recognition learning, hypothesis testing, and naming in response to an arbitrary stream of input patterns (Carpenter, Grossberg, Markuzon, Reynolds, and Rosen, 1992; Carpenter, Grossberg, and Reynolds, 1991). The intrinsic stability of ARTMAP allows the system to learn incrementally for an unlimited period of time. System stability properties can be traced to the structure of its learned memories, which encode clusters of attended features into its recognition categories, rather than slow averages of category inputs. The level of detail in the learned attentional focus is determined moment-by-moment, depending on predictive success: an error due to over-generalization automatically focuses attention on additional input details enough of which are learned in a new recognition category so that the predictive error will not be repeated. An ARTMAP system creates an evolving map between a variable number of learned categories that compress one feature space (e.g., visual features) to learned categories of another feature space (e.g., auditory features). Input vectors can be either binary or analog. Computational properties of the networks enable them to perform significantly better in benchmark studies than alternative machine learning, genetic algorithm, or neural network models. Some of the critical problems that challenge and constrain any such autonomous learning system will next be illustrated. Design principles that work together to solve these problems are then outlined. These principles are realized in the ARTMAP architecture, which is specified as an algorithm. Finally, ARTMAP dynamics are illustrated by means of a series of benchmark simulations.

A Neural Network Model of Speech Acquisition and Motor Equivalent Speech Production

This article describes a neural network model that addresses the acquisition of speaking skills by infants and subsequent motor equivalent production of speech sounds. The model learns two mappings during a babbling phase. A phonetic-to-orosensory mapping specifies a vocal tract target for each speech sound; these targets take the form of convex regions in orosensory coordinates defining the shape of the vocal tract. The babbling process wherein these convex region targets are formed explains how an infant can learn phoneme-specific and language-specific limits on acceptable variability of articulator movements. The model also learns an orosensory-to-articulatory mapping wherein cells coding desired movement directions in orosensory space learn articulator movements that achieve these orosensory movement directions. The resulting mapping provides a natural explanation for the formation of coordinative structures. This mapping also makes efficient use of redundancy in the articulator system, thereby providing the model with motor equivalent capabilities. Simulations verify the model's ability to compensate for constraints or perturbations applied to the articulators automatically and without new learning and to explain contextual variability seen in human speech production.

Unsupervised Neural Network for the Control of a Mobile Robot

This article introduces an unsupervised neural architecture for the control of a mobile robot. The system allows incremental learning of the plant during robot operation, with robust performance despite unexpected changes of robot parameters such as wheel radius and inter-wheel distance. The model combines Vector associative Map (VAM) learning and associate learning, enabling the robot to reach targets at arbitrary distances without knowledge of the robot kinematics and without trajectory recording, but relating wheel velocities with robot movements.

ARTMAP: Supervised Real-Time Learning and Classification of Nonstationary Data by a Self-Organizing Neural Network

This article introduces a new neural network architecture, called ARTMAP, that autonomously learns to classify arbitrarily many, arbitrarily ordered vectors into recognition categories based on predictive success. This supervised learning system is built up from a pair of Adaptive Resonance Theory modules (ARTa and ARTb) that are capable of self-organizing stable recognition categories in response to arbitrary sequences of input patterns. During training trials, the ARTa module receives a stream {a^(p)} of input patterns, and ARTb receives a stream {b^(p)} of input patterns, where b^(p) is the correct prediction given a^(p). These ART modules are linked by an associative learning network and an internal controller that ensures autonomous system operation in real time. During test trials, the remaining patterns a^(p) are presented without b^(p), and their predictions at ARTb are compared with b^(p). Tested on a benchmark machine learning database in both on-line and off-line simulations, the ARTMAP system learns orders of magnitude more quickly, efficiently, and accurately than alternative algorithms, and achieves 100% accuracy after training on less than half the input patterns in the database. It achieves these properties by using an internal controller that conjointly maximizes predictive generalization and minimizes predictive error by linking predictive success to category size on a trial-by-trial basis, using only local operations. This computation increases the vigilance parameter ρa of ARTa by the minimal amount needed to correct a predictive error at ARTb· Parameter ρa calibrates the minimum confidence that ARTa must have in a category, or hypothesis, activated by an input a^(p) in order for ARTa to accept that category, rather than search for a better one through an automatically controlled process of hypothesis testing. Parameter ρa is compared with the degree of match between a^(p) and the top-down learned expectation, or prototype, that is read-out subsequent to activation of an ARTa category. Search occurs if the degree of match is less than ρa. ARTMAP is hereby a type of self-organizing expert system that calibrates the selectivity of its hypotheses based upon predictive success. As a result, rare but important events can be quickly and sharply distinguished even if they are similar to frequent events with different consequences. Between input trials ρa relaxes to a baseline vigilance pa When ρa is large, the system runs in a conservative mode, wherein predictions are made only if the system is confident of the outcome. Very few false-alarm errors then occur at any stage of learning, yet the system reaches asymptote with no loss of speed. Because ARTMAP learning is self stabilizing, it can continue learning one or more databases, without degrading its corpus of memories, until its full memory capacity is utilized.