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A multivariate neuro-fuzzy system for foreign currency risk management decision making
Source
Neurocomputing archiveVolume 70 , Issue 4-6 (January 2007) table of contents
Pages 942-951
Year of Publication: 2007
ISSN:0925-2312
Authors
Vincent C. S. Lee
School of Business Systems, Monash University, Melbourne, Building 63, Wellington Road, Clayton, Vic. 3800, Australia
Hsiao Tshung Wong
School of Business Systems, Monash University, Melbourne, Building 63, Wellington Road, Clayton, Vic. 3800, Australia
Publisher
Elsevier Science Publishers B. V. Amsterdam, The Netherlands, The Netherlands
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10.1016/j.neucom.2006.10.025
ABSTRACT
Currency risk management decision involves deciding on when, how much and what hedging instrument (i.e., currency futures or options) should be used to hedge its risk exposure with the base currency. Intuitively the accuracy in forecasting the direction and magnitude of future exchange rate movements is central to currency risk management decision-making process. This research investigates the predictive performance of a hybrid multivariate model, using multiple macroeconomic and microstructure of foreign exchange market variables. Conceptually, the proposed system combines and exploits the merit of adaptive learning artificial neural network (ANN) and intuitive reasoning (fuzzy-logic inference) tools. An ANN is employed to forecast a foreign exchange rate movement which is followed by the intuitive reasoning of multi-period foreign currency returns using multi-value fuzzy logic for foreign currency risk management decision-making. Empirical tests with statistical and machine learning criteria reveal plausible performance of its predictive capability.
REFERENCES
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INDEX TERMS
Primary Classification: K. Computing Milieux K.6 MANAGEMENT OF COMPUTING AND INFORMATION SYSTEMS K.6.0 General Subjects: Economics
Additional Classification: G. Mathematics of Computing G.3 PROBABILITY AND STATISTICS Subjects: Multivariate statistics H. Information Systems H.4 INFORMATION SYSTEMS APPLICATIONS H.4.2 Types of Systems Subjects: Decision support (e.g., MIS) I. Computing Methodologies I.2 ARTIFICIAL INTELLIGENCE I.2.3 Deduction and Theorem Proving Subjects: Uncertainty, "fuzzy," and probabilistic reasoning I.2.6 Learning Subjects: Connectionism and neural nets I.6 SIMULATION AND MODELING I.6.5 Model Development Subjects: Modeling methodologies
General Terms: Algorithms, Design, Economics, Theory
Keywords: Macroeconomic variables, Multivariate fuzzy neural network, Risky decision making, Spot foreign exchange rates
Collaborative Colleagues:
Vincent C. S. Lee: colleagues
Hsiao Tshung Wong: colleagues