Cryptocurrency Portfolio Optimization by Neural Networks

Many cryptocurrency brokers nowadays offer a variety of derivative assets that allow traders to perform hedging or speculation. This paper proposes an effective algorithm based on neural networks to take advantage of these investment products. The proposed algorithm constructs a portfolio that contains a pair of negatively correlated assets. A deep neural network, which outputs the allocation weight of each asset at a time interval, is trained to maximize the Sharpe ratio. A novel loss term is proposed to regulate the network's bias towards a specific asset, thus enforcing the network to learn an allocation strategy that is close to a minimum variance strategy. Extensive experiments were conducted using data collected from Binance spanning 19 months to evaluate the effectiveness of our approach. The backtest results show that the proposed algorithm can produce neural networks that are able to make profits in different market situations.

Credit Card Fraud Detection with Subspace Learning-based One-Class Classification

In an increasingly digitalized commerce landscape, the proliferation of credit card fraud and the evolution of sophisticated fraudulent techniques have led to substantial financial losses. Automating credit card fraud detection is a viable way to accelerate detection, reducing response times and minimizing potential financial losses. However, addressing this challenge is complicated by the highly imbalanced nature of the datasets, where genuine transactions vastly outnumber fraudulent ones. Furthermore, the high number of dimensions within the feature set gives rise to the ``curse of dimensionality". In this paper, we investigate subspace learning-based approaches centered on One-Class Classification (OCC) algorithms, which excel in handling imbalanced data distributions and possess the capability to anticipate and counter the transactions carried out by yet-to-be-invented fraud techniques. The study highlights the potential of subspace learning-based OCC algorithms by investigating the limitations of current fraud detection strategies and the specific challenges of credit card fraud detection. These algorithms integrate subspace learning into the data description; hence, the models transform the data into a lower-dimensional subspace optimized for OCC. Through rigorous experimentation and analysis, the study validated that the proposed approach helps tackle the curse of dimensionality and the imbalanced nature of credit card data for automatic fraud detection to mitigate financial losses caused by fraudulent activities.

Forecasting Emergency Department Crowding with Advanced Machine Learning Models and Multivariable Input

Emergency department (ED) crowding is a significant threat to patient safety and it has been repeatedly associated with increased mortality. Forecasting future service demand has the potential patient outcomes. Despite active research on the subject, several gaps remain: 1) proposed forecasting models have become outdated due to quick influx of advanced machine learning models (ML), 2) amount of multivariable input data has been limited and 3) discrete performance metrics have been rarely reported. In this study, we document the performance of a set of advanced ML models in forecasting ED occupancy 24 hours ahead. We use electronic health record data from a large, combined ED with an extensive set of explanatory variables, including the availability of beds in catchment area hospitals, traffic data from local observation stations, weather variables, etc. We show that N-BEATS and LightGBM outpeform benchmarks with 11 % and 9 % respective improvements and that DeepAR predicts next day crowding with an AUC of 0.76 (95 % CI 0.69-0.84). To the best of our knowledge, this is the first study to document the superiority of LightGBM and N-BEATS over statistical benchmarks in the context of ED forecasting.

Optimum Output Long Short-Term Memory Cell for High-Frequency Trading Forecasting

High-frequency trading requires fast data processing without information lags for precise stock price forecasting. This high-paced stock price forecasting is usually based on vectors that need to be treated as sequential and time-independent signals due to the time irregularities that are inherent in high-frequency trading. A well-documented and tested method that considers these time-irregularities is a type of recurrent neural network, named long short-term memory neural network. This type of neural network is formed based on cells that perform sequential and stale calculations via gates and states without knowing whether their order, within the cell, is optimal. In this paper, we propose a revised and real-time adjusted long short-term memory cell that selects the best gate or state as its final output. Our cell is running under a shallow topology, has a minimal look-back period, and is trained online. This revised cell achieves lower forecasting error compared to other recurrent neural networks for online high-frequency trading forecasting tasks such as the limit order book mid-price prediction as it has been tested on two high-liquid US and two less-liquid Nordic stocks.

Predicting the State of Synchronization of Financial Time Series using Cross Recurrence Plots

Cross-correlation analysis is a powerful tool for understanding the mutual dynamics of time series. This study introduces a new method for predicting the future state of synchronization of the dynamics of two financial time series. To this end, we use the cross-recurrence plot analysis as a nonlinear method for quantifying the multidimensional coupling in the time domain of two time series and for determining their state of synchronization. We adopt a deep learning framework for methodologically addressing the prediction of the synchronization state based on features extracted from dynamically sub-sampled cross-recurrence plots. We provide extensive experiments on several stocks, major constituents of the S\&P100 index, to empirically validate our approach. We find that the task of predicting the state of synchronization of two time series is in general rather difficult, but for certain pairs of stocks attainable with very satisfactory performance.

Augmented Bilinear Network for Incremental Multi-Stock Time-Series Classification

Deep Learning models have become dominant in tackling financial time-series analysis problems, overturning conventional machine learning and statistical methods. Most often, a model trained for one market or security cannot be directly applied to another market or security due to differences inherent in the market conditions. In addition, as the market evolves through time, it is necessary to update the existing models or train new ones when new data is made available. This scenario, which is inherent in most financial forecasting applications, naturally raises the following research question: How to efficiently adapt a pre-trained model to a new set of data while retaining performance on the old data, especially when the old data is not accessible? In this paper, we propose a method to efficiently retain the knowledge available in a neural network pre-trained on a set of securities and adapt it to achieve high performance in new ones. In our method, the prior knowledge encoded in a pre-trained neural network is maintained by keeping existing connections fixed, and this knowledge is adjusted for the new securities by a set of augmented connections, which are optimized using the new data. The auxiliary connections are constrained to be of low rank. This not only allows us to rapidly optimize for the new task but also reduces the storage and run-time complexity during the deployment phase. The efficiency of our approach is empirically validated in the stock mid-price movement prediction problem using a large-scale limit order book dataset. Experimental results show that our approach enhances prediction performance as well as reduces the overall number of network parameters.

Multi-head Temporal Attention-Augmented Bilinear Network for Financial time series prediction

Financial time-series forecasting is one of the most challenging domains in the field of time-series analysis. This is mostly due to the highly non-stationary and noisy nature of financial time-series data. With progressive efforts of the community to design specialized neural networks incorporating prior domain knowledge, many financial analysis and forecasting problems have been successfully tackled. The temporal attention mechanism is a neural layer design that recently gained popularity due to its ability to focus on important temporal events. In this paper, we propose a neural layer based on the ideas of temporal attention and multi-head attention to extend the capability of the underlying neural network in focusing simultaneously on multiple temporal instances. The effectiveness of our approach is validated using large-scale limit-order book market data to forecast the direction of mid-price movements. Our experiments show that the use of multi-head temporal attention modules leads to enhanced prediction performances compared to baseline models.

Bilinear Input Normalization for Neural Networks in Financial Forecasting

Data normalization is one of the most important preprocessing steps when building a machine learning model, especially when the model of interest is a deep neural network. This is because deep neural network optimized with stochastic gradient descent is sensitive to the input variable range and prone to numerical issues. Different than other types of signals, financial time-series often exhibit unique characteristics such as high volatility, non-stationarity and multi-modality that make them challenging to work with, often requiring expert domain knowledge for devising a suitable processing pipeline. In this paper, we propose a novel data-driven normalization method for deep neural networks that handle high-frequency financial time-series. The proposed normalization scheme, which takes into account the bimodal characteristic of financial multivariate time-series, requires no expert knowledge to preprocess a financial time-series since this step is formulated as part of the end-to-end optimization process. Our experiments, conducted with state-of-the-arts neural networks and high-frequency data from two large-scale limit order books coming from the Nordic and US markets, show significant improvements over other normalization techniques in forecasting future stock price dynamics.

Mid-price Prediction Based on Machine Learning Methods with Technical and Quantitative Indicators

Stock price prediction is a challenging task, but machine learning methods have recently been used successfully for this purpose. In this paper, we extract over 270 hand-crafted features (factors) inspired by technical and quantitative analysis and tested their validity on short-term mid-price movement prediction. We focus on a wrapper feature selection method using entropy, least-mean squares, and linear discriminant analysis. We also build a new quantitative feature based on adaptive logistic regression for online learning, which is constantly selected first among the majority of the proposed feature selection methods. This study examines the best combination of features using high frequency limit order book data from Nasdaq Nordic. Our results suggest that sorting methods and classifiers can be used in such a way that one can reach the best performance with a combination of only very few advanced hand-crafted features.

Feature Engineering for Mid-Price Prediction with Deep Learning

Mid-price movement prediction based on limit order book (LOB) data is a challenging task due to the complexity and dynamics of the LOB. So far, there have been very limited attempts for extracting relevant features based on LOB data. In this paper, we address this problem by designing a new set of handcrafted features and performing an extensive experimental evaluation on both liquid and illiquid stocks. More specifically, we implement a new set of econometrical features that capture statistical properties of the underlying securities for the task of mid-price prediction. Moreover, we develop a new experimental protocol for online learning that treats the task as a multi-objective optimization problem and predicts i) the direction of the next price movement and ii) the number of order book events that occur until the change takes place. In order to predict the mid-price movement, the features are fed into nine different deep learning models based on multi-layer perceptrons (MLP), convolutional neural networks (CNN) and long short-term memory (LSTM) neural networks. The performance of the proposed method is then evaluated on liquid and illiquid stocks, which are based on TotalView-ITCH US and Nordic stocks, respectively. For some stocks, results suggest that the correct choice of a feature set and a model can lead to the successful prediction of how long it takes to have a stock price movement.