Neural and wavelet network models for financial distress classification

This work analyzes the use of linear discriminant models, multi-layer perceptron neural networks and wavelet networks for corporate financial distress prediction. Although simple and easy to interpret, linear models require statistical assumptions that may be unrealistic. Neural networks are able to discriminate patterns that are not linearly separable, but the large number of parameters involved in a neural model often causes generalization problems. Wavelet networks are classification models that implement nonlinear discriminant surfaces as the superposition of dilated and translated versions of a single "mother wavelet" function. In this paper, an algorithm is proposed to select dilation and translation parameters that yield a wavelet network classifier with good parsimony characteristics. The models are compared in a case study involving failed and continuing British firms in the period 1997-2000. Problems associated with over-parameterized neural networks are illustrated and the Optimal Brain Damage pruning technique is employed to obtain a parsimonious neural model. The results, supported by a re-sampling study, show that both neural and wavelet networks may be a valid alternative to classical linear discriminant models.

A sparse parallel hybrid Monte Carlo algorithm for matrix computations

In this paper we introduce a new algorithm, based on the successful work of Fathi and Alexandrov, on hybrid Monte Carlo algorithms for matrix inversion and solving systems of linear algebraic equations. This algorithm consists of two parts, approximate inversion by Monte Carlo and iterative refinement using a deterministic method. Here we present a parallel hybrid Monte Carlo algorithm, which uses Monte Carlo to generate an approximate inverse and that improves the accuracy of the inverse with an iterative refinement. The new algorithm is applied efficiently to sparse non-singular matrices. When we are solving a system of linear algebraic equations, Bx = b, the inverse matrix is used to compute the solution vector x = B(-1)b. We present results that show the efficiency of the parallel hybrid Monte Carlo algorithm in the case of sparse matrices.

Knowledge-elicitation and data-mining: fusing human and industrial plant information

Knowledge-elicitation is a common technique used to produce rules about the operation of a plant from the knowledge that is available from human expertise. Similarly, data-mining is becoming a popular technique to extract rules from the data available from the operation of a plant. In the work reported here knowledge was required to enable the supervisory control of an aluminium hot strip mill by the determination of mill set-points. A method was developed to fuse knowledge-elicitation and data-mining to incorporate the best aspects of each technique, whilst avoiding known problems. Utilisation of the knowledge was through an expert system, which determined schedules of set-points and provided information to human operators. The results show that the method proposed in this paper was effective in producing rules for the on-line control of a complex industrial process. (C) 2005 Elsevier Ltd. All rights reserved.