ARTIFICIAL NEURAL NETWORK MODEL FOR FORECASTING FOREIGN EXCHANGE RATE

Philip Adewole · Adio Taofiki Akinwale · A B Akintomide

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Stock Market Forecasting Methods Neural Networks and Applications Forecasting Techniques and Applications

Abstract

The present statistical models used for forecasting cannot effectively handle uncertainty and instability nature of foreign exchange data. In this work, an artificial neural network foreign exchange rate forecasting model (AFERFM) was designed for foreign exchange rate forecasting to correct some of these problems. The design was divided into two phases, namely: training and forecasting. In the training phase, back propagation algorithm was used to train the foreign exchange rates and learn how to approximate input. Sigmoid Activation Function (SAF) was used to transform the input into a standard range [0, 1]. The learning weights were randomly assigned in the range [-0.1, 0.1] to obtain the output consistent with the training. SAF was depicted using a hyperbolic tangent in order to increase the learning rate and make learning efficient. Feed forward Network was used to improve the efficiency of the back propagation. Multilayer Perceptron Network was designed for forecasting. The datasets from oanda website were used as input in the back propagation for the evaluation and forecasting of foreign exchange rates. The design was implemented using matlab7.6 and visual studio because of their supports for implementing forecasting system. The system was tested using mean square error and standard deviation with learning rate of 0.10, an input layer, 3 hidden layers and an output layer. The best known related work, Hidden Markov foreign exchange rate forecasting model (HFERFM) showed an accuracy of 69.9% as against 81.2% accuracy of AFERFM. This shows that the new approach provided an improved technique for carrying out foreign exchange rate forecasting. KeywordsArtificial Neural Network; Back propagation Algorithm; Hidden Markov Model; BaumWeld Algorithm; Sigmoid Activation Function and Foreign Exchange Rate.

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References

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