Financial Markets Analysis by Probabilistic Fuzzy Modelling

20 Pages Posted: 30 Mar 2006

See all articles by J. van den Berg

J. van den Berg

Delft University of Technology, Faculty of Technology, Policy and Management, Section of ICT

U. Kaymak

Erasmus University Rotterdam (EUR) - Faculty of Economics - Department of Computer Science; Erasmus Research Institute of Management (ERIM)

W. M. van den Bergh

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Erasmus Research Institute of Management (ERIM)

Date Written: 29 2003 4,

Abstract

For successful trading in financial markets, it is important to develop financial models where one can identify different states of the market for modifying one???s actions. In this paper, we propose to use probabilistic fuzzy systems for this purpose. We concentrate on Takagi???Sugeno (TS) probabilistic fuzzy systems that combine interpretability of fuzzy systems with the statistical properties of probabilistic systems. We start by recapitulating the general architecture of TS probabilistic fuzzy rule-based systems and summarize the corresponding reasoning schemes. We mention how probabilities can be estimated from a given data set and how a probability distribution can be approximated by a fuzzy histogram. We apply our methodology for financial time series analysis and demonstrate how a probabilistic TS fuzzy system can be identified, assuming that a linguistic term set is given. We illustrate the interpretability of such a system by inspecting the rule bases of our models.

Keywords: probabilistic fuzzy systems, fuzzy reasoning, fuzzy rule base, data-driven design, time series analysis

JEL Classification: M, M11, R4, C45

Suggested Citation

van den Berg, J. and Kaymak, Uzay and van den Bergh, W. M., Financial Markets Analysis by Probabilistic Fuzzy Modelling (29 2003 4,). ERIM Report Series Reference No. ERS-2003-036-LIS, Available at SSRN: https://ssrn.com/abstract=411664

J. Van den Berg (Contact Author)

Delft University of Technology, Faculty of Technology, Policy and Management, Section of ICT ( email )

P.O. Box 5015
2600 GB Delft
Netherlands

HOME PAGE: http://tbm.tudelft.nl/index.php?id=30084&L=1

Uzay Kaymak

Erasmus University Rotterdam (EUR) - Faculty of Economics - Department of Computer Science ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

W. M. Van den Bergh

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

Burgemeester Oudlaan 50
3062 PA Rotterdam, NL 3062 PA
Netherlands

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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