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Financial market crises prediction by Financial market crises prediction by multifractal and wavelet analysis.multifractal and wavelet analysis.
Russian Plekhanov Academy of EconomicsRussian Plekhanov Academy of Economics
Romanov V.P., Bachinin Y.G., Moskovoy I.N., Badrina M.V.Romanov V.P., Bachinin Y.G., Moskovoy I.N., Badrina M.V.
It is well known, that financial markets are essentially non-linear systems and financial time series are fractals.
That’s why prediction of crash situations at finance market is a very difficult task. It doesn’t allow us to use effectively such well-known methods as ARIMA or MACD in view of their sluggishness.
Multifractal and wavelets analysis methods are providing more deep insight into the nature of phenomena. Multiagent simulation makes it possible to explicate dynamic properties of the system.
The main aim is to find out the predictors or some kind of predicting signals which may warn as about forthcoming crisis
The aim of the researchThe aim of the research
a) Changing of ruble/dollar exchange rate at period 01.08.1997-01.11.1999 (Default in Russia)
b) American Index Dow Jones Industrial at “Black Monday” 1987 at period 17.10.1986-31.12.1987
с) Dow Jones Industrial Index
e) Nasdaq
d) RTSI
07.10.1999 -06.10.2008
07.10.1999 -06.10.2008
07.10.1999 -06.10.2008
Indexes DJI, RTS.RS, NASDAQ,S&P 500 falling at crisis period
1 monthSeptember 15,2008 – October 17, 2008
The collapse in the stock markets the analysts linked to the negative external background. U.S. indexes have completed a week 29.09 - 6.10 falling, despite the fact that the U.S. Congress approved a plan to rescue the economy.
Investors fear that the attempt to improve the situation by pouring in amount of $ 700 billion, which involves buying from banks illiquid assets will not be able to improve the situation in credit markets and prevent a decline in the economy.
3 months July 17,2008 – October 17, 2008
When Asian stock indices collapsed to a minimum for more than three years. The negative news had left the Russian market no choice – its began to decline rapidly.
6 months April 17,2008 – October 17, 2008
Efficient Market Hypothesis (EMH) asserts, that financial markets are "informationally efficient", or that prices on traded assets, e.g., stocks, bonds, or property, already reflect all known information. The efficient-market hypothesis states that it is impossible to consistently outperform the market by using any information that the market already knows, except through luck. Information or news in the EMH is defined as anything that may affect prices that is unknowable in the present and thus appears randomly in the future.
Capital Asset Pricing Model (CAPM) is used to determine a theoretically appropriate required rate of return of an asset, if that asset is to be added to an already well-diversified portfolio, given that asset's non-diversifiable risk. The model takes into account the asset's sensitivity to non-diversifiable risk (also known as systemic risk or market risk), often represented by the quantity beta (β) in the financial industry, as well as the expected return of the market and the expected return of a theoretical risk-free asset.
Arbitrage pricing theory (APT), in finance, is a general theory of asset pricing, that has become influential in the pricing of stocks. APT holds that the expected return of a financial asset can be modeled as a linear function of various macro-economic factors or theoretical market indices, where sensitivity to changes in each factor is represented by a factor-specific beta coefficient.
Efficient Market HypothesisEfficient Market Hypothesis versusversus Fractal Market HypothesisFractal Market Hypothesis
Efficient market hypothesysEfficient market hypothesys ((EMHEMH))
Assumption of normal distribution of prices increments
The weak form EMH from a purely random distribution of prices has been criticized
Semi-strong form of EMH, in which all available information is reflected in the prices used by professionals
Changing prices in the long run does not show the presence of «memory»
Fractral market hypothesysFractral market hypothesys(FMH)
Prices shows leptoexcess effect for prices probability distribution(“fat tails”)
The prices plot looks similary for the period of time in the day, week, month (fractal pattern)
Reducing the reliability of predictions with the increase of its period
Prices shows short-term and long-term correlation and trends (the effect of feedback)
Chaotic activity of the market
FractalsFractals ––The term fractal was coined in 1975 by Benoît Mandelbrot, from the Latin fractus, meaning "broken" or "fractured".(colloquial) a shape that is recursively constructed or self-similar, that is, a shape that appears similar at all scales of magnification.(mathematics) a geometric object that has a Hausdorff dimension greater than its topological dimension.
The second feature that characterizes fractals is the fractional dimension.
The word fractal came from fractional values – partial values, which may take the fractal dimension of objects
Fractals may cause the application of Iterative Functions System
The image, which is the only fixed point of IFS is called attractor
Fractal definitionFractal definition
Chaos and dynamics of fractal marketChaos and dynamics of fractal market
Market prices tend to level the natural balance within the price range
These levels or ranges can be described as «attractors»
However, the data within those ranges remain casual
Point attractorsPoint attractors• The simplest form of the attractor. In theory, compatible
with the balance of supply and demand in the economy or the market equilibrium.
• Represent market volatility on balance, or "market noise"
• Displays Multiple varying the amplitude fluctuation, which are contained within the set limit cycle attractor, called «phase space».
Limit cycle attractorsLimit cycle attractors
Strange or fractal attractorsStrange or fractal attractors
Attractors typesAttractors types
Serpinsky TriangleSerpinsky Triangle
Fractals examplesFractals examples
Another fractals examplesAnother fractals examples
Fractal attractors andFractal attractors and financial markets financial markets
Stocks and futures - classic examples of securities. Profit from buying and selling comparable with fluctuations in the pendulum
Each bearer security or futures contract are located in its own phase space
Long-term forecasting is heavily dependent on accurate measurement of initial conditions of the market
Fractals on capital marketFractals on capital market Financial markets describes a
nonlinear function of active traders
Traditional methods of technical analysis based on linear equations and Euclidean geometry are inadequate
Market jumps growth and recession are nonlinear
Technical analysis methods are poor indicators of the relationship trend and trading decisions
Fractals can describe the phenomena that are not described in Euclidean geometry
Stochastic process {x(t)} is called Multifractal, if it has fixed increments and satisfies the condition
,
when c(q) – predictor, E- operator of mathematical expectation, , – intervals on the real axis.
Scaling function taking into account the impact of time on points q.
MultifractalMultifractal
)(q
Bt
1τ(q)qtΔt+t tΔc(q)(=)|xxE(| )
Definiting the Fractal Dimension IndexDefiniting the Fractal Dimension Index Fractal dimension indedx Fractal dimension indedx ((FDIFDI))::
NS(1/2NS(1/2nn))––the number of blocks with a length of handthe number of blocks with a length of hand
1/21/2nn, , which necessarywhich necessary,, to cover S to cover S – – Serpinsky triangleSerpinsky triangle..
Где Где NNAA (1/(1/nn) –) – the number of blocks with length of hand the number of blocks with length of hand, , equalequal
1/1/nn, , which necessary to coverwhich necessary to cover variety variety А.А.
Фрактальное Множество
А
58,1)2ln(
)3ln(
)2ln(
)3ln(lim n
n
nsd
)ln(
))/1(ln(lim
n
nNd A
n
Fractal Dimension IndexFractal Dimension Index
Defines the persistence or antipersistence of Defines the persistence or antipersistence of market. Persistent market weakly fluctuated market. Persistent market weakly fluctuated around the market trend around the market trend
antipersistent market shows considerable volatility antipersistent market shows considerable volatility on the trend on the trend
antipersistent market is more rugged pricing antipersistent market is more rugged pricing schedule and more frequently show a change schedule and more frequently show a change trendstrends
Crisis prediction techniqueCrisis prediction technique
Because our goal is the prediction of crises, we Because our goal is the prediction of crises, we are trying to first find out the best indicator, using are trying to first find out the best indicator, using methodology Multifractal and wavelet analysis.methodology Multifractal and wavelet analysis.
Then we test various types of pre-processing the Then we test various types of pre-processing the original time series to find the best indicator.original time series to find the best indicator.
Hurst exponentHurst exponent
Depending on the value of Heurst Depending on the value of Heurst exponent the properties of the exponent the properties of the process are distinguished as follows:process are distinguished as follows: When H = 0.5, there is a process of When H = 0.5, there is a process of random walks, which confirms the random walks, which confirms the hypothesis EMH. hypothesis EMH.
When H > 0.5, the process has long-When H > 0.5, the process has long-term memory and is persistent, that term memory and is persistent, that is it has a positive correlation for is it has a positive correlation for different time scales. different time scales.
When H < 0.5, time-series is anti-When H < 0.5, time-series is anti-persistent with average switching persistent with average switching from time to time.from time to time.
Ttzzx ttt ,...,1,lnln 1
11
1,),(
t
t
uu xxxxtx
),(min),(max)(11
txtxRtt
1
21)(
uu xxS
log)(
)(log SR
H
Time series partitioningTime series partitioning Time series: {xt}; t [0, T].
Compute: Z={zt}, zt= lnxt+1-lnxt; t [0,T];
Divide interval [0, T] into N subintervals, 1 ≤ N ≤ Nmax.
Each subinterval contains int (T/N)=A values Z;
For each subinterval K; 1 ≤ K ≤ N current reading number lK;1 ≤ lK ≤ A; t = (K-1) А+ lK
As soon as we are looking for the best indicator of a coming default, we will use several variants of a preliminary processing.
Time series preprocessingTime series preprocessing
1. The original time series itself: Z={zt};
2. Preprocessed time series Z1={ }, K=1,2,…N,
where
3. Preprocessed time series
where
4. Preprocessed time series Z3={ }
ZK
A
llK
K
Kz
AZ
10
1
K
KlAK
S
ZZZ K
10
2
A
lKlK
K
KZZ
AS
1
2
0
1
KlAK ZZK
10
Partition functionsPartition functionsFor each preprocessed time series compute partition function for
different N and q values :
N
K
q
AKKAN ZTZqZ1
)1(0)(00 |)(|),(
N
K
qKKN ZTZqZ
11
1 |)(|),(
N
K
qAKN ZKAZqZ
1
)1(222 |)(|),(
N
K
q
AKKAN ZZqZ1
)1(3)(33 ||),(
Scaling functionsScaling functions
A
NAqZq
NN log
loglog),(log)(
00
A
NAqZq
NN log
loglog),(log)(
11
A
NAqZq
NN log
loglog),(log)(
22
A
NAqZq
NN log
loglog),(log)(
33
Fractal dimension spectrum Fractal dimension spectrum estimationestimation
1. Lipshitz – Hoelder exponent estimation: :
when, i = 1, 2, 3, 4.
2. Fractal dimension spectrum estimation by Legendre transform
qqqqqdq
d iiii
i
/)(/))1()((
)])()([min(arg)]([minarg)( qqqqqf iiq
iq
I
Fractal dimension spectrum Fractal dimension spectrum width as crash indicatorwidth as crash indicator
Multifractal may be composed of two or infinite number of monofractals with continuous varying α values. Width of α spectrum may be estimated as difference between maximum and minimum values of α:
Δ = max - min , By carrying out Legendre transform we are trying
using our program by estimating Δ to find differences in its values before and after crash.
Roughly speaking f() gives us number of time moments, for which degree of polynomial, needed for approximation f() equals (according to Lipshitz condition).
Scaling functionsScaling functions
Non-linear scaling functionNon-linear scaling function(q) (q) ((Multifractal processMultifractal process))
Changes in currency for the Changes in currency for the Russian default of 1998Russian default of 1998
Assesment of multifractal spectrum of singularity at period 09.07.96-21.07.98
Assesment of multifractal spectrum of singularity at period 18.11.96-30.11.98
Screenshots assessment of Screenshots assessment of Multifractal spectrum of singularityMultifractal spectrum of singularity
Dow Jones Industrial Index, pre-crisis situation
19.12.2006-06.10.2008
Scaling functionsScaling functions
Non-linear scaling-function (q) (multifractal process)
RTSI index, pre-crisis situation
19.12.2006-06.10.2008
Non-linear scaling-function (q) (multifractal process)
Scaling functionsScaling functions
Scaling functionsScaling functions
linear scaling-function (q) (monofractal process)
Assesment of multifractal spectrum of singularity RTSI at
period 16.05.2000 -30.05.2002
Screenshots assesment of Screenshots assesment of Multifractal spectrum of singularityMultifractal spectrum of singularity
Assesment of multifractal spectrum of singularity DJI at period 19.12.2006-08.10.2008
Assesment of multifractal spectrum of singularity RTSI at
period 16.12.2003-10.01.2006
"Needles" that determine the expansion of Multifractal "Needles" that determine the expansion of Multifractal spectrum on an hourly schedule spectrum on an hourly schedule 5.2008-11.20085.2008-11.2008
Experimental resultsExperimental results
Schedule assessment of the width of the spectrum of fractal singularity (Δ(t)=αmax-αmin) for different periods of time
American Dow Jones at the «Black Monday» 1987 period 17.10.1986-
31.12.1987
Schedule assessment of the width of the spectrum of fractal singularity (Δ(t)=αmax-αmin) at the «Black Monday»
0
0,10,2
0,30,4
0,50,6
one yearbeforedefolt
11.07.96-23.07.98
19.07.96-31.07.98
29.07.96-10.08.98
06.08.96-18.08.98
14.08.96-26.08.98
00,050,1
0,150,2
0,250,3
Graph of Multifractal spectrum singularity width assessment Graph of Multifractal spectrum singularity width assessment ((ΔΔ(t)=(t)=ααmaxmax--ααminmin)) atat russian index RTSI at periodrussian index RTSI at period
0707.10.19.10.199999--0707.1.111..20082008interval Qmin Qma
xN ∆
1-51207.10.1999 –18.10.2001
-2 6 47 0,964151-662
16.05.2000 -30.05.2002-2 6 103 0,495
301-81215.12.2000 -31.12.2002
-2 6 129 1,62451-962
25.07.2001 -11.08.2003-2 5 31 0,81
601-111228.02.2002 -17.03.2004
-2 6 170 1,77751-1262
03.10.2002 -19.10.2004-2 6 129 2,17
901- 141215.05.2003 -02.06.2005
-2 6 129 1,9271051-1562
16.12.2003 -10.01.2006-2 5 43 0,952
1201-171226.07.2004 -15.08.2006
-2 5 21 0,8681351-1862
04.03.2005 -26.03.2007-2 5 22 0,89
1501-201206.10.2005 -25.10.2007
-2 5 23 0,8481651-2162
19.05.2006 -07.06.2008-2 5 40 0,927
1801-224619.12.2006 -06.10.2008
-2 7 145 2,1331765-2277
25.09.2006 -07.11.2008-2 7 161 2,177
Experimental resultsExperimental results(RTSI)(RTSI)
Graph of Multifractal spectrum singularity width assessment (Δ(t)=αmax-αmin) at russian index RTSI at period 07.10.1999-07.11.2008
Over 4 years outstanding mortgage loans in Russia rose Over 4 years outstanding mortgage loans in Russia rose more than 16 times - from 3.6 billion rubles. in 2002 to 58.0 billion more than 16 times - from 3.6 billion rubles. in 2002 to 58.0 billion rubles. in 2005. In quantitative terms - from 9,000 loans in 2002 to rubles. in 2005. In quantitative terms - from 9,000 loans in 2002 to
78,603 in 2005.78,603 in 2005.
Why mortgage evolving so rapidly? Many factors. This increase in real Why mortgage evolving so rapidly? Many factors. This increase in real incomes and the decline of distrust towards mortgage, as from potential incomes and the decline of distrust towards mortgage, as from potential buyers, and from the sellers, and a general reduction in the average interest buyers, and from the sellers, and a general reduction in the average interest rate for mortgage loans from 14 to 11% per annum, and the advent of rate for mortgage loans from 14 to 11% per annum, and the advent of Moscow banks in the regions, and intensifying in the market of small and Moscow banks in the regions, and intensifying in the market of small and medium-sized banks.medium-sized banks.
Pre-crisis situation: Pre-crisis situation: July 2008 - the beginning of september 2008 July 2008 - the beginning of september 2008
Graph of Multifractal spectrum singularity width assessment Graph of Multifractal spectrum singularity width assessment ((ΔΔ(t)=(t)=ααmaxmax--ααminmin)) atat Russian index RTSI at periodRussian index RTSI at period
0707.10.19.10.199999--0909.1.122..20082008
interval Qmin Qmax N ∆
1-51207.10.1999 –18.10.2001
-2 5 164 1,84151-662
16.05.2000 -30.05.2002-2 4 5 0,717
301-81215.12.2000 -31.12.2002
-2 5 134 1,77451-962
25.07.2001 -11.08.2003-2 5 65 1,01
601-111228.02.2002 -17.03.2004
-2 5 74 1,108751-1262
03.10.2002 -19.10.2004-2 4 11 0,791
901- 141215.05.2003 -02.06.2005
-2 4 38 0,8031051-1562
16.12.2003 -10.01.2006-2 4 50 0,815
1201-171226.07.2004 -15.08.2006
-2 4 53 0,8841351-1862
04.03.2005 -26.03.2007-2 4 57 0,973
1501-201206.10.2005 -25.10.2007
-2 4 29 0,8641651-2162
19.05.2006 -07.06.2008-2 4 11 0,836
1801-226319.12.2006 -06.10.2008
-2 5 151 2,324
Graph of Multifractal spectrum singularity width assessmentGraph of Multifractal spectrum singularity width assessment ((ΔΔ(t)=(t)=ααmaxmax--ααminmin)) at american index Dow Jones Industrialat american index Dow Jones Industrial at period at period
0707.10.19.10.199999--0707.1.111..20082008
1765-228425.09.2006 -07.11.2008
-2 5 174 1,984
There was a sharp drop in the index and 9 october 2002 DJIA reached an interim There was a sharp drop in the index and 9 october 2002 DJIA reached an interim minimum with a value of 7286,27.minimum with a value of 7286,27.
Dow Jones Industrial index of 15 september 2008, fell to 4.42 per cent to 10,917 Dow Jones Industrial index of 15 september 2008, fell to 4.42 per cent to 10,917 points - is the largest of its fall in a single day since 9 october 2002, reported France points - is the largest of its fall in a single day since 9 october 2002, reported France Presse. World stock markets experienced a sharp decline in major indexes in Presse. World stock markets experienced a sharp decline in major indexes in connection with the bankruptcy Investbank Lehman Brothers.connection with the bankruptcy Investbank Lehman Brothers.
Graph of Multifractal spectrum singularity width assessment (Δ(t)=αmax-αmin) at american index Dow Jones Industrial at period 07.10.1999-07.11.2008
Experimental results(DJI)Experimental results(DJI)
3 May, 1999, the index reached a value of 3 May, 1999, the index reached a value of 11014.70. Its maximum - mark 11722.98 - 11014.70. Its maximum - mark 11722.98 -
Dow-Jones indexDow-Jones index reached at 14 January 2000.reached at 14 January 2000.
Pre-crisis situation: Pre-crisis situation: July 2008 - the beginning of september 2008 July 2008 - the beginning of september 2008
Graph of Multifractal spectrum singularity width assessmentGraph of Multifractal spectrum singularity width assessment ((ΔΔ(t)=(t)=ααmaxmax--ααminmin)) at american index Dow Jones Industrialat american index Dow Jones Industrial at period at period
0707.10.19.10.199999--0909.1.122..20082008
interval Qmin
Qmax N ∆
1-51207.10.1999 –18.10.2001
-2 6 47 0,91151-662
16.05.2000 -30.05.2002-2 6 57 0,935
301-81215.12.2000 -31.12.2002
-2 6 86 1,092451-962
25.07.2001 -11.08.2003-2 5 25 0,74
601-111228.02.2002 -17.03.2004
-2 5 31 0,821751-1262
03.10.2002 -19.10.2004-2 5 129 1,385
901- 141215.05.2003 -02.06.2005
-2 4 9 0,7261051-1562
16.12.2003 -10.01.2006-2 4 13 0,765
1201-171226.07.2004 -15.08.2006
-2 4 19 0,781351-1862
04.03.2005 -26.03.2007-2 4 19 0,792
1501-201206.10.2005 -25.10.2007
-2 4 15 0,7781651-2162
19.05.2006 -07.06.2008-2 4 5 0,772
1801-226319.12.2006 -06.10.2008
-2 5 77 1,185
Graph of Multifractal spectrum singularity width assessmentGraph of Multifractal spectrum singularity width assessment ((ΔΔ(t)=(t)=ααmaxmax--ααminmin)) at american index NASDAQ Composite at period at american index NASDAQ Composite at period
0707.10.19.10.199999--0707.1.111..20082008
1765-228425.09.2006 -07.11.2008
-2 6 207 1,067
Experimental results(NASDAQ)Experimental results(NASDAQ) Graph of Multifractal spectrum singularity width assessment (Δ(t)=αmax-αmin) at american index NASDAQ Composite at period 07.10.1999-07.11.2008
In August 2002 the first NASDAQ closes its branch in Japan, as well as In August 2002 the first NASDAQ closes its branch in Japan, as well as closing branches in Europe, and now it was turn European office, where closing branches in Europe, and now it was turn European office, where for two years, the number of companies whose shares are traded on the for two years, the number of companies whose shares are traded on the exchange fell from 60 to 38.exchange fell from 60 to 38.
After that happened result in a vast dropIn 2000, he reached even five thousandth mark, but After that happened result in a vast dropIn 2000, he reached even five thousandth mark, but after the general collapse of the market of computer and information technology is now in an after the general collapse of the market of computer and information technology is now in an area of up to two thousand points.area of up to two thousand points.
The index of technology companies The index of technology companies NASDAQ Composite reached its peak in NASDAQ Composite reached its peak in
March 2000.March 2000.
Pre-crisis situation: Pre-crisis situation: July 2008 - the beginning of september 2008 July 2008 - the beginning of september 2008
Graph of Multifractal spectrum singularity width assessmentGraph of Multifractal spectrum singularity width assessment ((ΔΔ(t)=(t)=ααmaxmax--ααminmin)) at american index NASDAQ Composite at period at american index NASDAQ Composite at period
0707.10.19.10.199999--0909.1.122..20082008
Default’s Default’s 19981998 indicator. indicator.
Данные min max
11.08.98 2,837 3,337 0,5
12.08.98 2,837 3,335 0,498
13.08.98 2,838 3,325 0,487
14.08.98 2,839 3,344 0,505
17.08.98 1,8 3,36 1,56
18.08.98 1,97 3,3 1,33
19.08.98 1,355 3,26 1,905
20.08.98 1,499 3,264 1,765
21.08.98 1,499 3,4 1,901
24.08.98 1,5 3,249 1,749
a)
b)
Part Multifractal spectrum of data related to graph b)
The red line shows that the width multifraktalnogo spectrum begins to grow at the same time as changing the exchange rate, but more clearly.
Wavelet-analysisWavelet-analysis
где ,(t)– where ,(t)– function with zero mean centered
around zero with time scale and time horizon . Family of wavelet vectors is created from mother function
by displacement and scaling
,)()(),( , dtttxW
)(1
)(
tt
Time series f(t) representation as linear Time series f(t) representation as linear combinationcombination of wavelet functionsof wavelet functions
where jo – a constant, representing the highest level of resolution for which the most acute details are extracted .
),()()( ,,,
0
00tttf kj
kkj
jjkj
kj
dtttf kjkj )()( ,, 00
dtttf kjkj )()( ,,
WA crisis detectionWA crisis detection experiment experiment - 1- 1
In our study we usedIn our study we used Daubechies wavelet functions wavelet functions decomposition (db-4 decomposition (db-4 ии db-12). db-12).
The goal was the detection of the signal, which could The goal was the detection of the signal, which could predict the sudden changes. Data on exchange rates predict the sudden changes. Data on exchange rates (USD) to the ruble were taken from the site www.rts.ru (USD) to the ruble were taken from the site www.rts.ru for the period 1.09.1995 - 12.02.1999for the period 1.09.1995 - 12.02.1999
The total number of numbered in the order several times The total number of numbered in the order several times in the interim for the period 1.09.1995 - 12.02.1999 was in the interim for the period 1.09.1995 - 12.02.1999 was 862 value.862 value.
Graph of changingGraph of changing RTS indexes at period RTS indexes at period 1.09.1995 – 12.02.19991.09.1995 – 12.02.1999
0
5
10
15
20
25
01.0
9.1
995
04.1
1.1
995
22.0
1.1
996
27.0
3.1
996
04.0
6.1
996
09.0
8.1
996
14.1
0.1
996
18.1
2.1
996
25.0
2.1
997
05.0
5.1
997
10.0
7.1
997
12.0
9.1
997
18.1
1.1
997
27.0
1.1
998
02.0
4.1
998
10.0
6.1
998
14.0
8.1
998
19.1
0.1
998
24.1
2.1
998
The division time series on the rangesThe division time series on the ranges
To achieve the goal of this time series was divided into 7 To achieve the goal of this time series was divided into 7 overlapping intervals located unevenly, so that the overlapping intervals located unevenly, so that the interval 4 (242-753) immediately preceding the time of interval 4 (242-753) immediately preceding the time of default and subsequent intervals captured the moment of default and subsequent intervals captured the moment of default. default.
Each interval consisted of 512 values: 1-512, 101-612, Each interval consisted of 512 values: 1-512, 101-612, 201-712, 242-753, 251-762, 301-812, 351-862.201-712, 242-753, 251-762, 301-812, 351-862.
Predicting the crisis with the help of wavelet analysisPredicting the crisis with the help of wavelet analysis
# Interval Maximum for all levels
Difference maximum ratios
1 1-512 0,068796 -
2 101-612 0,140859 0,072062
3 201-712 0,150173 0,009314
4 242-753 11,234599 11,084426
5 251-762 11,850877 0,616278
6 301-812 7,944381 -3,906496
7 351-862 9,802439 1,858058
-6
-4
-2
0
2
4
6
8
10
12
13.02.1998 10.07.1998 07.09.1998 18.09.1998 30.11.1998 12.02.1999
# interval Average value
Difference averages
1 1-512 5,249121 -
2 101-612 5,518002 0,268881
3 201-712 5,759273 0,241271
4 242-753 5,926961 0,167688
5 251-762 6,077492 0,150531
6 301-812 7,124922 1,047431
7 351-862 8,672407 1,547484
0
0,2
0,4
0,6
0,8
1
1,2
1,4
1,6
1,8
13.02.1998 10.07.1998 07.09.1998 18.09.1998 30.11.1998 12.02.1999
The schedule change ratios of difference from the average value of currencies this intervala to the value of the previous intervala for the period 19.09.1997-12.02.1999 (dates are taken on the right border, ie 512 value).
The schedule changes difference ratios of maximum ratios of decomposition of Dobeshi-12 for the period 19.09.1997-12.02.1999 (dates are taken on the right border, ie 512 value)
-20000
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0
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interval Maximum for all levels
Difference maximum
ratios
1 1-128 13083,070 --------------
2 64-192 223,834 -12859,235
3 96-224 262,039 38,204
4 106-234 258,122 -3,916
5 111-239 262,371 3,917
6 114-242 14785,540 14523,169
7 124-252 789,933 -13995,607
8 126-254 1298,050 508,117
9 177-305 475,376 -822,673
The schedule changes difference maximum The schedule changes difference maximum coefficients of expansion in the Dobeshi-12 coefficients of expansion in the Dobeshi-12 (17.10.1986-31.12.1987).(17.10.1986-31.12.1987).
The difference coefficientsThe difference coefficients of of Daubechies -12-12
«Black Monday» Detector«Black Monday» Detector
At the previous slide we can see the positive peak earlier 01.10.87 and negative peak before 15.10.87.
This is more than 4 days before the «Black Monday».
Sharp line connects the two peaks. Obviously, this information can serve as a detector impending crisis.
42 days prior to the default Of the figure shows that the start of trading, the corresponding spike in the
dollar may be adopted point 742 (21.08.1998), a peak corresponds to 754 points (07.09.1998).
As we can see from the previous slide in the event of data processing by the Russian default by default, if we use the average of the indicator is the intervals difference, then we can find that the sharp increase occurring 18.09.1998, ie delayed by at least 11 days. At the same time schedule for the coefficients of wavelet functions shows us that the beginning of dramatic changes difference wavelet coefficients of expansions is a point 712 (10.07.1998).
We can, apparently, to predict the onset of default at least 42 days (10.07.1998 - 21.08.1998). At the same time increase the maximum value (Fig. 4) of this indicator in the starting time was 74.5 times (initial value = 0.15; following value = 11.23)
WA crisis detectionWA crisis detection experiment experiment - - 22
In our experiment, number 2, we used Daubechies wavelet functions decomposition (db-4).
The goal was the detecting the signal, which could predict the sudden changes in the index DJI (Dow Jones Index - Dow Jones). Data on DJI were taken from the site http://finance.yahoo.com for the period 7.10.1999 - 24.11.2008
The total number of numbered in the order several times in the interim for the period 7.10.1999 - 24.11.2008 at 2299 values.
Graph Graph DJIDJI change 7.10.1999- change 7.10.1999-88.1.111.2008.2008
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Change the values of Hurst exponent said that the market in anticipation Change the values of Hurst exponent said that the market in anticipation of becoming antipersistent crisis: H <0,5of becoming antipersistent crisis: H <0,5
Changing detailing factors wavelet decomposition of db-4 showChanging detailing factors wavelet decomposition of db-4 show conversion market (antipersistent)conversion market (antipersistent)
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Changing detailing factors wavelet decomposition of Changing detailing factors wavelet decomposition of db-4 suggest crossing a market for the period db-4 suggest crossing a market for the period
07.07.2005 - 24.11.200807.07.2005 - 24.11.2008
Fundamental analysisFundamental analysis Fundamental analysis is based on an assessment of market
conditions in general and assessing the future development of a single issuer.
Fundamental analysis is a fairly laborious and a special funding agencies.
Fundamental analysis depends on the news of factors. By random and unexpected news include political and natural, as well as war.
How to conduct a fundamental analysis can be divided into four separate units, correlating with each other.
Fundamental analysis Fundamental analysis technologytechnology
The first unit - is a macroeconomic analysis of the economy as a whole.
The second unit - is an industrial analysis of a particular industry.
A third unit - a financial analysis of a particular enterprise.
A fourth unit - analyzing the qualities of investment securities issuer.
Fundamental analysis technology includes an analysis of news published in the media, and comparing them with the securities markets.
Analysis MethodAnalysis Method
Keyword extraction, characterizing the market: boost or cut, the increase / decrease.
Automatic analysis using the terminology the ontology.
Processing time series (filtering, providing trends, the seasonal components).
Using neural networks to classify the flow of news and processing time series.
•Examine what news articles relevant to the company, Yahoo uses
profiling to establish consistency between articles and companies.
•For each trend formed a temporary window to explore how art
relates to the trend.
•It is believed that there is a match, if the article appeared a few
hours before the trend.
News analysis targetNews analysis target
The intensity of the flow of news dataThe intensity of the flow of news dataThe joint processing of digital and text dataThe joint processing of digital and text data
Digital data Time series
The movement of financial instruments (price / volume)
Flow intensity:
5Mb/day, on the tool
Text data
Text flows
Various types:
News, financial reports, company brochures, government documents
Flow intensity:
20Mb/day
Idea of systemIdea of system
Past articles with newsPast articles
with news
Past data pricing
securities market
Past data pricing
securities market
Building modelBuilding model
ModelModel
New arcticles
with news
New arcticles
with news
Prediction results
Prediction results
System exit
System exit
Real system architectureReal system architecture
SYSTEM QUIRK
Reuters News Feed
Up
Down
Time Series of Up and Down
Financial instrument (Reuters) e.g. FTSE
100 INDEX
0
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1.2
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Date
Ratio
Good words FTSE100
0
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Good words FTSE100
Generate Signal (Buy / Sell)
Comparsion time and stocks by timeComparsion time and stocks by time
Text analysis should apply:Text analysis should apply:Recognition of the named entity. The discovery of those (people), organizations, Recognition of the named entity. The discovery of those (people), organizations,
currencies.currencies.
Extracting key information related to organizations, persons, facts, evidence from Extracting key information related to organizations, persons, facts, evidence from documents.documents.
The establishment of relations between the patterns.The establishment of relations between the patterns.
Creating a template to scripting events, organizations, regions.Creating a template to scripting events, organizations, regions.
The formation of coherence - to collect information on sovstrechaemosti The formation of coherence - to collect information on sovstrechaemosti expressions. The result of the system is the text as a set of the following expressions. The result of the system is the text as a set of the following components:components:
<AGENT> <CONCERN> <GOAL> <AGENT><AGENT> <CONCERN> <GOAL> <AGENT> <CONCERN, THE IMPORTANCE> <GOAL, the value><CONCERN, THE IMPORTANCE> <GOAL, the value>
Between formed in such a description of news and current prices of assets in the Between formed in such a description of news and current prices of assets in the securities market established statistical connection to predict price changes securities market established statistical connection to predict price changes depending on the nature of news.depending on the nature of news.
Fundamental analysis ontologyFundamental analysis ontology
News, alterNews, alter securities coursesecurities course
Automatic 3-side Automatic 3-side integrationintegration
Competetive Competetive researchesresearches, , discovered discovered
automaticallyautomatically
Concentrated content, Concentrated content, organised with organised with
semantic categoriessemantic categories
Relevant content, Relevant content, not expressed not expressed
evidentlyevidently
(semantic (semantic associations)associations)
Automatic content Automatic content integration from sources integration from sources
and other providersand other providers
Fundamental analysis results with Fundamental analysis results with ontology usingontology using
Price graphs and charts Price graphs and charts
Pricing modelscalls figures or creatings, which appers on price graphs
These figures, or education (chart pattern), divided into some groups and can be used to predict the market dynamics
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