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Stock Prices Forecast Using Radial Basis Function Neural Network

Stock Prices Forecast Using Radial Basis Function Neural Network

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Published by ijcsis
Neural Network has been implemented in various applications especially in pattern recognition. This power has attracted several people to use Neural Network for various systems. One of the neural network implementation in the field of finance or investments is forecasting stocks. Assuming that the prediction of the output system is deterministic, than the suitable Neural Network model to predict it is Multilayer Network. To get the solution, Multilayer Neural Network method with supervised algorithm is applied. The supervised algorithm used for stock price prediction is Radial Basis Function. This algorithm can supervise the networks by using previous stock price data, classifying them and putting weight on the networks. This journal illustrates how Radial Basis Function Neural Network method can be used to predict stocks. The result showed that Radial Basis Function Neural Network method is able to forecast and follow the movement of stock data used in the experiment.
Neural Network has been implemented in various applications especially in pattern recognition. This power has attracted several people to use Neural Network for various systems. One of the neural network implementation in the field of finance or investments is forecasting stocks. Assuming that the prediction of the output system is deterministic, than the suitable Neural Network model to predict it is Multilayer Network. To get the solution, Multilayer Neural Network method with supervised algorithm is applied. The supervised algorithm used for stock price prediction is Radial Basis Function. This algorithm can supervise the networks by using previous stock price data, classifying them and putting weight on the networks. This journal illustrates how Radial Basis Function Neural Network method can be used to predict stocks. The result showed that Radial Basis Function Neural Network method is able to forecast and follow the movement of stock data used in the experiment.

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(IJCSIS) International Journal of Computer Science and Information Security,Vol.11, No.3, 2013
 STOCK PRICES FORECAST USING RADIAL BASIS FUNCTION NEURAL NETWORK 
Julia Fajaryanti
Faculty of Industrial TechnologyGunadarma UniversityJalan Margonda Raya 100 Depok - Indonesia.
Priyo Sarjono Wibowo
Faculty of Industrial TechnologyGunadarma UniversityJalan Margonda Raya 100 Depok - Indonesia
 Abstract 
 — 
 
 Neural Network has been implemented in variousapplications especially in pattern recognition. This power hasattracted several people to use Neural Network for various systems.One of the neural network implementation in the field of finance or investments is forecasting stocks. Assuming that the prediction of the output system is deterministic, than the suitable Neural Network model to predict it is Multilayer Network. To get the solution, Multilayer Neural Network method with supervised algorithm isapplied. The supervised algorithm used for stock price prediction is Radial Basis Function. This algorithm can supervise the networksby using previous stock price data, classifying them and putting weight on the networks. This journal illustrate how Radial BasisFunction Neural Network method can be used to predict stocks.The result showed that Radial Basis Function Neural Network method is able to forecast and follow the movement of stock dataused in the experiment.
 Keywords: Stock Prices, Multilayer Neural Network, RadialBasis Function, Supervised
I.I
 NTRODUCTION
 The role of capital markets in the Indonesianeconomy began institutionalized. Currently one of the purchase of shares legitimate capital choices, in addition toother forms of capital such as money, land, and gold. Rationalfactors and various irrational factors be the deciding factor in purchasing shares. Rational factors commonly associated withthe analysis fundamental. Fundamental analysis does notconsider the pattern of movement of shares in the past buttrying to determine the appropriate value for a stock.In perfect capital markets and efficient, stock pricesreflect all publicly available information on and informationexchange that can only be obtained from certain groups. Highand low stock prices influenced by many factors such asconditions and company performance, risk, dividend, interestrates, conditions economy, government policy, inflation,supply and demand as well as many more. Because anticipate possible changes in the factors above, the stock price can riseor fall. Prediction of the stock price will very
useful for 
investors to be able to see how the prospects of investing inthe stock of a company come. Stock price prediction can beused to anticipate the rise and fall of stock prices. With the prediction of share price, it is very helpful for investors indecision making. There are two methods that prediction canuse in this implementation, namely: conventional methods andArtificial Neural Network (ANN). In this journal, authors willimplement Radial Basis Function Neural Network in financialapplication to forecast the stock prices.II.
STATE
 
OF
 
THE
 
ART
There are many factors that influence the price of astock. Most of these factors are included in the factors relatedto the social situation, where it is very difficult to estimate.However, there are things that can be used as a basis for estimating the price of a stock, one by studying the previous price of a stock, and then we can estimate the stock price inthe future. This, of course can help decision-makers to theactivities of buying and selling a stock [7]. For that we need amethod to identify and study the movement of the stock priceover time in order to estimate the price of a stock of a particular company.It also takes a special device to do it, this is due to thelimitations of human beings in the data processing activitiesthat are so difficult and numerous in numbers. Thus, we usethe computer to do it. To be able to work on it, the computer requires a learning process. In this process, computers arefaced with a series of data that has been classified and willstudy the patterns of the data. Lessons learned include theadjustment to a predetermined pattern, or by studying thesimilarity of the pattern. It is accompanied by the developmentof computers, the better, in terms of speed, accuracy, and cost[8]. Neural network is a system that can be relied to do acomplex quick count processing with higher speed comparedto another organs. The use of neural networks requires anunderstanding of the way of thinking in the human brain. Somany elements in the human brain, where they are
 
connected
21http://sites.google.com/site/ijcsis/ISSN 1947-5500
 
(IJCSIS) International Journal of Computer Science and Information Security,Vol.11, No.3, 2013
to each other, working together in order to processinformation. An important part of this paradigm is the simplestructure of the information processing system. It consists of alarge number of processing elements (neurons) that areinterconnected and work together in order to solve a particular  problem [9]. As this idea, many researchers start to make theneural network which is applicable to the computer machine.According to [3] Neural Networks have shown to better predictive performance in predicting future stock pricesmovements by analyzing the past sequence of the stocks and Neural Networks can outperform the conventional statisticalmodels [4,5,6]. Then raised some of artificial neural network models which has been applied in various areas. An artificialneural network (ANN), usually called neural network (NN), isa mathematical model or computational model that tries tosimulate the structure and/or functional aspects of biologicalneural networks. It consists of an interconnected group of artificial neurons and processes information using aconnectionist approach to computation. In most cases an ANNis an adaptive system that changes its structure based onexternal or internal information that flows through the network during the learning phase. Neural networks are non-lineastatistical data modeling tools. They can be used to modelcomplex relationships between inputs and outputs or to find patterns in data. Artificial neural network determined by threethings. Determining the appropriate network architecture is thefirst step in building a well and according to the needs of artificial neural network. This following some of the network architecture is often used in the artificial neural network, suchas single layer network, multi layer network, and recurrentnetwork.III.
METHODOLOGY
Stock market prediction is a world of financialforecasting area which attracted much attention from variouscircles, especially the investors. Stock price prediction is veryuseful for investors to be able to see how the stock of acompany’s investment in the future. By using the prediction, itis helpful to investors in making decisions. Expected income perpetrators in the majority of the equity investment is acapital gain. This causes the process of forecasting the stock value is very important in stock investing. An attempt todetermine the stock price should have been done by anyfinancial analysts with the aim to obtain an attractive rate of return, although quite difficult for investors to "beat themarket" and earn profits above normal levels.The prediction of the stock price is the complexinteraction between unstable market and unknown random processes factor. The data from stock price can be determined by time series. If we have daily data from a certain period, for example : Xt(t = 1,2,...) than the stock price for the next period(t+1) can be predicted (the timing used can be in hourly, daily,weekly, monthly or yearly). To get the good prediction, theinputs from several aspects of the share prices have to be inputin Neural Network after that the weighing principal can beadapted to minimize the wrong prediction in the first futuresteps.
Figure 1. Artificial Neural Network to Forecast Stocks [11]
By using the final weighing, an action is done to done tominimize the total error for the next iteration. Due to that, therisk of Investors decision to sell or buy the stock can beminimized. The steps to be performed in a simulated stock  price forecasting using Neural Network:• Collecting data stock prices• Determining the structure of the ANN to be built• Conduct training and testing of neural network which is builtusing existing
Implementing Radial Basis Function to Forecast theStocks using MATLAB
 A.Implementing Radial Basis function to Forecast theStocks using MATLAB
Before build a network, then we must determine thespread is to be used. Determination of trial and error spread isobtained. Process of trial and error will produce coatingweights and biases. Spread that will be used RBF is that producing the greatest weight value of the bias layer.Furthermore, the process of building the network. We form anetwork that will be included in the RBF with the third layer,where the first layer (input) consists of one neuron withactivation function based on radial radbas and the second layer (hidden layer) consists of n neurons with activation function purelin, and output layer consisting of one neuron and isrepresented in Matlabnet = newrbe(P, T, 5);Weights are determined by Matlab, with the calculation of each weight has been determined through the function of tissue formation. To see the value of these weights are usedthe following command:Bobot_Input = net.IW{1,1}Bobot_Bias_Input = net.b{1,1}Bobot_Lapisan = net.LW{2,1}Bobot_Bias_Lapisan = net.b{2,1}
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(IJCSIS) International Journal of Computer Science and Information Security,Vol.11, No.3, 2013
At the output layer, the layer weights (W{2,1}) and the weightrefraction layer (b{2}) was obtained from the simulationresults in each hidden layer (A) which then solved using alinear function (purelin):[W{2,1}b{2}*A{1};ones] = TInput on the output layer (A1) and target (T) is linear,so that the weight of layers and layers of refraction weightscan be calculated byWb = T/[P;ones(1,Q)]
Wb
containing layer weight and the weight bias, with therefraction weight lies in the last column.
 B.Simulation and output network on training data
From the results in training that can be simulated with thesame input with data input training. Output simulation resultsare stored in
a
vector a = sim(net,P);H = [(1:size(P,2))’ T’ a’ (T’-a’)];sprintf(’%5d %11,2f %11,2f %11,2f\n’, H);
sprintf 
aims to print variable H´with the format listed above.Variable H will holdvalue:
(1: size (P, 2))’
means the loop will be performedstarting from an initial value to the size of inputtraining data.
T’
target of the original data.
a’
is the output network.
(T’ - a’)
is the error on each training data, that is theresult of a reduction in the output target valuenetwork.network output and the target were analyzed by linear regression using Postreg :[m1,c1,r1] = postreg(a,T);its produceline gradient reversed (m1): m1 = 0.96005constants (c1): C1 = 343.07For the best fit line equation: m1 + c1 = 0.96005+343.07connection coefficients (r1): r1 = 0.97982If coefficient value (approaching 1), it showed goodresults for a match withthe target network output.
C.Simulation and output network on testing data
From the results in training that can be simulated withthe same input with data input training. Output simulationresults are stored in
a
vector  b = sim(net,Q);L = [(1:size(Q,2))’ TQ’ b’ (TQ’ - b’)];sprintf(’%5d %11,2f %11,2f %11,2f\n’, L);
sprintf 
aims to print variable L´with the format listed above.Variable L will holdvalue:• (1: size (Q, 2))’ means the loop will be performedstarting from an initial valueto the size of input training data.• TQ’ target of the original data.• b’ is the output network.• (TQ’ - b’) is the error on each training data, that isthe result of a reductionin the output target value network.\network output and the target were analyzed by linear regression usingPostreg :[m2,c2,r2] = postreg(b,TQ);its produceline gradient reversed (m2): m2 = 0.9423constants (c2): C2 = 423.98For the best fit line equation: m2 + c2 = 0.9423+423.98connection coefficients (r2): r1 = 0.87207if coefficient value (approaching 1), it showed good results for a match with the target network output.IV.
RESULTS
 
AND
 
DISCUSSION
In this section, authors analyzes the results of output program. Before analyze the result, authors test the system toget the result of prediction data. Please note that this test takesa sample of 247 data of stocks, as mentioned before, the dataused in this journal is Telkom share data in the period August3, 2009 until August 26, 2010. Then authors divide the datainto two parts, the first 187 data means the data from periodAugust 3, 2009 until May 31, 2010 used for training the datain system. And for the 60 data are from June 1, 2010 untilAugust 26, 2010. As shown in the table, for the data trainingthere is the biggest error that is equal to 3.92% in the datanumbers 125. And for the data testing there is the biggest error that is equal to 7.5% in the first data. However, overall resultsshow the accuracy of predictive data above 90%.
 A.Result of Data Training 
To train the data for the system, authors used 187data. As shown in the table bellow, for the data training thereis the biggest error that is equal to 3.92% in the data numbers125. However, overall results show that the accuracy of  predictive data is above 90%.
23http://sites.google.com/site/ijcsis/ISSN 1947-5500

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