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Computational Intelligence for Financial Engineering, 1999. (CIFEr) Proceedings of the IEEE/IAFE 1999 Conference on

Date 27-27 April 1999

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  • Proceedings of the IEEE/IAFE 1999 Conference on Computational Intelligence for Financial Engineering (CIFEr) (IEEE Cat. No.99TH8408)

    Publication Year: 1999
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    Freely Available from IEEE
  • Author's index

    Publication Year: 1999, Page(s): 322
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    Freely Available from IEEE
  • A new method for estimating value-at-risk of Brady bond portfolios

    Publication Year: 1999, Page(s):1 - 5
    Request permission for commercial reuse | Click to expandAbstract | PDF file iconPDF (252 KB)

    Value-at-risk (VAR) statistics are often calculated by a variance-covariance matrix methodology. However, such an approach ignores the well known fact that high frequency financial data tend to substantially deviate from the Gaussian distribution. This feature is particularly pronounced in country spread data (over treasuries) for emerging markets. This study addresses the problem of estimating VA... View full abstract»

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  • Fat tails and non-linearity in volatility models: what is more important?

    Publication Year: 1999, Page(s):259 - 266
    Request permission for commercial reuse | Click to expandAbstract | PDF file iconPDF (420 KB)

    Since the seminal works of R.F. Engle (1982) and T. Bollerslev (1986) about heteroskedastic return series models, many extensions of their (G)ARCH models have been proposed in the literature. In particular, the functional dependence of conditional variances and the shape of the conditional distribution of returns have been varied in several ways (A.K. Bera and M.L. Higgins, 1993; T. Bollerslev et ... View full abstract»

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  • Fuzzy modeling in stock-market analysis

    Publication Year: 1999, Page(s):250 - 258
    Cited by:  Papers (1)
    Request permission for commercial reuse | Click to expandAbstract | PDF file iconPDF (820 KB)

    The article examines the application of Takagi-Sugeno fuzzy models (T. Takagi and M. Sugeno, 1985) to the problem of stock market analysis. Different model structures are evaluated in a case study on the modeling of the Dutch AEX-price index. A scenario model is used for examining “what-if” scenarios and a prediction model searches for predictive components in relevant (macro) economic... View full abstract»

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  • Convertible bond valuation: 20 out of 30 day soft-call

    Publication Year: 1999, Page(s):198 - 217
    Request permission for commercial reuse | Click to expandAbstract | PDF file iconPDF (624 KB)

    “Soft-call” in convertible bonds (CBs) usually means that the bond can be recalled by the issuer only if the stock price has previously closed above a specified trigger price for any 20 out of any 30 consecutive trading days. It is not an easy optionality to value and no method has been implemented besides Monte Carlo. The problem is not very well suited to Monte Carlo due to a large n... View full abstract»

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  • Modelling financial time series with switching state space models

    Publication Year: 1999, Page(s):240 - 249
    Cited by:  Papers (1)
    Request permission for commercial reuse | Click to expandAbstract | PDF file iconPDF (504 KB)

    The deficiencies of stationary models applied to financial time series are well documented. A special form of non-stationarity, where the underlying generator switches between (approximately) stationary regimes, seems particularly appropriate for financial markets. We use a dynamic switching (modelled by a hidden Markov model) combined with a linear dynamical system in a hybrid switching state spa... View full abstract»

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  • Extracting risk-neutral densities from option prices using mixture binomial trees

    Publication Year: 1999, Page(s):135 - 158
    Cited by:  Papers (3)
    Request permission for commercial reuse | Click to expandAbstract | PDF file iconPDF (1148 KB)

    Since the stock market crash in October of 1987, prices of index options deviate significantly from Black-Scholes theory. This fact is prominently documented in the literature as the volatility smile (M. Rubinstein 1994). The pricing error is a sign that the assumptions of the model do not capture all relevant information embedded in option prices. As response to this problem, previous research ha... View full abstract»

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  • Beyond VaR: from measuring risk to managing risk

    Publication Year: 1999, Page(s):163 - 178
    Cited by:  Papers (3)
    Request permission for commercial reuse | Click to expandAbstract | PDF file iconPDF (896 KB)

    The paper examines tools for managing, as opposed to simply monitoring, a portfolio's value-at-risk (VaR). These tools include the calculation of VaR contribution, marginal VaR and trade risk profiles. We first review the parametric, or delta-normal versions of these tools and then extend them to the simulation based, or nonparametric case. We analyze two sample portfolios: one, consisting of fore... View full abstract»

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  • Neural network and fuzzy logic techniques for time series forecasting

    Publication Year: 1999, Page(s):191 - 197
    Request permission for commercial reuse | Click to expandAbstract | PDF file iconPDF (240 KB)

    Prediction is a typical example of a generalization problem. The goal of prediction is to accurately forecast the short term evolution of the system based on past information. Neural network and fuzzy logic techniques are used because they both have good generalization capabilities. The embedding dimension (number of inputs) and the time lag selection problem is treated. It is proposed that the se... View full abstract»

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  • Nonlinear prediction of conditional percentiles for value-at-risk

    Publication Year: 1999, Page(s):118 - 134
    Request permission for commercial reuse | Click to expandAbstract | PDF file iconPDF (1008 KB)

    We propose, implement and evaluate an approach to predicting conditional distribution tail percentiles, which corresponds to value-at-risk (VaR) when applied to financial asset return series. Our approach differs from current methods for measuring VaR in two basic ways. Firstly, while the standard variance-covariance framework assumes that asset return distributions are normal, we make no assumpti... View full abstract»

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  • Intelligent trading systems: a multi-agent hybrid architecture

    Publication Year: 1999, Page(s):64 - 73
    Cited by:  Papers (3)
    Request permission for commercial reuse | Click to expandAbstract | PDF file iconPDF (516 KB)

    We propose an architecture for a multi-agent hybrid intelligent system that can trade in multiple markets. We start by identifying the requirements of an intelligent trading system. We then analyze how intelligent agents can be utilized to construct an intelligent trading system and overcome problems with current approaches. We describe the architecture of the Quo Vadis system (H.-E. Eriksson and ... View full abstract»

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  • On hedge effectiveness and risk decomposition

    Publication Year: 1999, Page(s):297 - 321
    Request permission for commercial reuse | Click to expandAbstract | PDF file iconPDF (960 KB)

    A new approach to hedge accounting in the US as prescribed by the Statement of Financial Accounting Standards No.133 will be applicable to all fiscal years beginning June 1999. The Financial Accounting Standards Board requires both ex-ante and ex-post assessment of hedge effectiveness. The hedging entity is responsible for establishing its own effectiveness criteria. The Board further requires tha... View full abstract»

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  • Reducing arbitrage risk by fuzzy regression based prediction of exchange rates for composite currencies

    Publication Year: 1999, Page(s):6 - 16
    Request permission for commercial reuse | Click to expandAbstract | PDF file iconPDF (344 KB)

    Some financial instruments are denominated in several currencies rather than a single currency. This increases the volatility in exchange rates as well as the uncertainty in predictability. Therefore, fuzzy axiomatic structure is implemented to increase both mathematical tractability and physical realism of the problem for composite currency. We used the theoretical development from our earlier wo... View full abstract»

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  • Modelling multivariate data by neuro-fuzzy systems

    Publication Year: 1999, Page(s):267 - 270
    Request permission for commercial reuse | Click to expandAbstract | PDF file iconPDF (272 KB)

    The paper proposes an approach for solving multivariate modelling problems with neuro-fuzzy systems. Instead of using selected input variables, statistical indices are extracted to feed the fuzzy controller. The original input space is transformed into an eigenspace. If a sequence of training data are sampled in a local context, a small number of eigenvectors which possess larger eigenvalues provi... View full abstract»

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  • Real options in leasing semi-submersible rigs in the North Sea

    Publication Year: 1999, Page(s):218 - 239
    Cited by:  Patents (1)
    Request permission for commercial reuse | Click to expandAbstract | PDF file iconPDF (984 KB)

    We consider the effect of idle time for pricing extension, termination and assignment options on short-term leases. The area of application covers capital intensive equipment performing specific functions and services. Examples include leases for semi-submersible drilling rigs, marine seismic services, corporate real estate leasing, retail space leasing and apartment leasing. The critical factor i... View full abstract»

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  • A fuzzy perspective towards technical analysis-case study of trend prediction using moving averages

    Publication Year: 1999, Page(s):179 - 182
    Cited by:  Papers (3)
    Request permission for commercial reuse | Click to expandAbstract | PDF file iconPDF (216 KB)

    Chartists usually rely on technical indicators to predict trends in time series charts. Although the indicators are precise and most practitioners tend to concur to a large extent on the general meaning of the indicators, it is hard to specify precise thresholds as a basis for deciding on a particular course of action. Probabilistic based approaches do offer recourse for handling such kinds of unc... View full abstract»

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  • Computing portfolio risk using Gaussian mixtures and independent component analysis

    Publication Year: 1999, Page(s):74 - 117
    Cited by:  Papers (3)
    Request permission for commercial reuse | Click to expandAbstract | PDF file iconPDF (2060 KB)

    Addressing the problem of non-normal portfolio returns, we introduce a novel approach for estimating the distribution of portfolio returns considering higher order mutual information. It allows us to extend the standard variance-covariance framework and efficiently re-compute measures of market risk such as the standard Value-at-Risk or any other probability density based measure. The approach com... View full abstract»

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  • A new method for adaptive model-based control of economic systems using a neuro-fuzzy-genetic approach: the case of international trade dynamics

    Publication Year: 1999, Page(s):17 - 26
    Request permission for commercial reuse | Click to expandAbstract | PDF file iconPDF (816 KB)

    We describe the application of our new method for adaptive model based control (using a neuro-fuzzy-genetic approach) to the problem of controlling international trade dynamics. The problem of international trade between two or more countries is a very complex one because of the nonlinearities involved in the mathematical models (O. Castillo and P. Melin, 1998). We describe the methodology to deve... View full abstract»

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  • An adaptive critic approach for self-learning stock trading

    Publication Year: 1999, Page(s):271 - 280
    Request permission for commercial reuse | Click to expandAbstract | PDF file iconPDF (580 KB)

    The paper describes a stock trading system with self learning capability using adaptive critic designs. The same approach can be formulated for other financial applications such as trading of bonds, options, futures, commodities, and the like View full abstract»

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  • Beyond VaR: parametric and simulation-based risk management tools

    Publication Year: 1999, Page(s):159 - 162
    Request permission for commercial reuse | Click to expandAbstract | PDF file iconPDF (236 KB)

    Financial institutions worldwide have devoted much effort to developing enterprise-wide systems that integrate financial information across their organizations to measure their institution's risk. Probabilistic measures such as value-at-risk (VaR), are now widely accepted by both financial institutions and regulators for assigning risk capital and monitoring risk. Since development efforts have be... View full abstract»

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  • Component analysis in financial time series

    Publication Year: 1999, Page(s):183 - 190
    Request permission for commercial reuse | Click to expandAbstract | PDF file iconPDF (492 KB)

    We discuss the application of principal component analysis and independent component analysis for blind source separation of univariate financial time series. In order to perform single-channel versions of these techniques, we work within the embedding framework, using delay coordinate vectors to obtain a multidimensional representation of the system dynamics at each time instance. The main object... View full abstract»

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  • Testing a jump-diffusion stochastic interest rates model in currency options markets

    Publication Year: 1999, Page(s):27 - 63
    Request permission for commercial reuse | Click to expandAbstract | PDF file iconPDF (1260 KB)

    The paper examines the ability of the jump-diffusion models to explain systematic deviations in implicit distributions from the benchmark assumption of lognormality. Jumps that occur in the spot exchange rate due to supply and demand fluctuations in the currency market impose distributions for spot and futures prices that have degrees of skewness and kurtosis different from those of the lognormal ... View full abstract»

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  • Extracting earnings information from financial statements via genetic algorithms

    Publication Year: 1999, Page(s):281 - 296
    Cited by:  Papers (1)
    Request permission for commercial reuse | Click to expandAbstract | PDF file iconPDF (640 KB)

    One of the goals of financial statement analysis is to extract firm-value-relevant information from financial statements. The process by which this information is processed can be considered a black box. In making forecasts and reports, analysts examine financial statement variables and derived quantities and aggregate their information with outside information. The process is subjective and it is... View full abstract»

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