• DocumentCode
    428728
  • Title

    Forecasting the volatility of a financial index by wavelet transform and evolutionary algorithm

  • Author

    Ma, Irwin ; Wong, Tony ; Sankar, Thiagas ; Siu, Raymond

  • Author_Institution
    Dept. of Autom. Manufacturing Eng., Quebec Univ., Montreal, Que., Canada
  • Volume
    6
  • fYear
    2004
  • fDate
    10-13 Oct. 2004
  • Firstpage
    5824
  • Abstract
    The daily volatility is a crucial variable in the study of financial risks. Traditional financial engineering methods based on parametric models such as the GARCH family, have limited success in volatility forecasting due to their rigid and linear structure. In the current paper, the integrated volatility of the 1998-2002 S&P100 index has been calculated and wavelet transformed to find the time horizon(s) that suits the subsequent forecasting procedure. In a genetic algorithm (GA) process, a group of rules based on predetermined format is trained to extract patterns from the time series. Those rules are tested to predict the 2003 S&P100 series. With 100 simple ´IF/THEN´ rules on a 4-lag recursive memory, the forecasting accuracy is shown to average 75%, matching the level achieved in other proprietary research and far superior to that of GARCH models.
  • Keywords
    finance; genetic algorithms; time series; wavelet transforms; 1998-2002 S&P100 index; 4-lag recursive memory; GARCH family; evolutionary algorithm; financial engineering methods; financial index; financial risks; genetic algorithm; parametric models; time series; volatility forecasting; wavelet transform; Economic forecasting; Evolutionary computation; Frequency; Manufacturing automation; Parametric statistics; Predictive models; Security; Wavelet analysis; Wavelet packets; Wavelet transforms;
  • fLanguage
    English
  • Publisher
    ieee
  • Conference_Titel
    Systems, Man and Cybernetics, 2004 IEEE International Conference on
  • ISSN
    1062-922X
  • Print_ISBN
    0-7803-8566-7
  • Type

    conf

  • DOI
    10.1109/ICSMC.2004.1401124
  • Filename
    1401124