A Novel Hybrid Back Propagation Neural Network Approach for Time Series Forecasting Under the Volatility

Abstract

An Artificial Neural Network (ANN) algorithms have been widely used in machine learning for pattern recognition, classifications and time series forecasting today; especially in financial applications with nonlinear and nonparametric modeling’s. The objective of this study is an attempt to develop a new hybrid forecasting approach based on back propagation neural network (BPN) and Geometric Brownian Motion (GBM) to handle random walk data patterns under the high volatility. The proposed methodology is successfully implemented in the Colombo Stock Exchange (CSE) Sri Lanka, the daily demands of the All Share Price Index (ASPI) price index from April 2009 to March 2017. The performances of the model are evaluated based on the best two forecast horizons of 75% and 85% training samples. According to the empirical results, 85% training samples have given highly accurate in their testing process. Furthermore, the results confirmed that the proposed hybrid methodology always gives the best performances under the high volatility forecasting compared to the separate traditional time series models.