Prediction based – High Frequency Trading on Financial Time Series

Farhad Kia, Janos Levendovszky

2013

Abstract

In this paper we investigate prediction based trading on financial time series assuming general AR(J) models and mean reverting portfolios. A suitable nonlinear estimator is used for predicting the future values of a financial time series will be provided by a properly trained FeedForward Neural Network (FFNN) which can capture the characteristics of the conditional expected value. In this way, one can implement a simple trading strategy based on the predicted future value of an asset price or a portfolio and comparing it to the current value. The method is tested on FOREX data series and achieved a considerable profit on the mid price. In the presence of the bid-ask spread, the gain is smaller but it still ranges in the interval 2-6 percent in 6 months without using any leverage. FFNNs were also used to predict future values of mean reverting portfolios after identifying them as Ornstein-Uhlenbeck processes. In this way, one can provide fast predictions which can give rise to high frequency trading on intraday data series.

Paper Citation

in Harvard Style

Kia F. and Levendovszky J. (2013). Prediction based – High Frequency Trading on Financial Time Series . In Proceedings of the 5th International Joint Conference on Computational Intelligence - Volume 1: NCTA, (IJCCI 2013) ISBN 978-989-8565-77-8, pages 502-506. DOI: 10.5220/0004555005020506

in Bibtex Style

@conference{ncta13,
author={Farhad Kia and Janos Levendovszky},
title={Prediction based – High Frequency Trading on Financial Time Series},
booktitle={Proceedings of the 5th International Joint Conference on Computational Intelligence - Volume 1: NCTA, (IJCCI 2013)},
year={2013},
pages={502-506},
publisher={SciTePress},
organization={INSTICC},
doi={10.5220/0004555005020506},
isbn={978-989-8565-77-8},
}

in EndNote Style

TY - CONF
JO - Proceedings of the 5th International Joint Conference on Computational Intelligence - Volume 1: NCTA, (IJCCI 2013)
TI - Prediction based – High Frequency Trading on Financial Time Series
SN - 978-989-8565-77-8
AU - Kia F.
AU - Levendovszky J.
PY - 2013
SP - 502
EP - 506
DO - 10.5220/0004555005020506