An evolutionary recursive algorithm in selecting statistical subset neural networkVDL filtering.pdfVIP

AN EVOLUTIONARY RECURSIVE ALGORITHM IN SELECTING STATISTICAL SUBSET NEURAL NETWORK/VDL FILTERING ANDREW H. CHEN, JACK H. PENM, AND R. D. TERRELL Received 26 June 2005; Accepted 4 October 2005 We propose an evolutionary recursive algorithm, for the exact windowed case, to esti- mate subset vector discrete lag (SVDL) filters with a forgetting factor and an intercept variable. SVDL filtering is demonstrated as a basis for constructing a multi-layered poly- nomial neural network by Penm et al. (2000) The new proposed time update recursions allow users to update SVDL filters at consecutive time instants, and can show evolution- ary changes detected in filter structures. With this new approach we are able to more ef- fectively analyse complex relationships where the relevant financial time series have been generated from structures subject to evolutionary changes in their environment. An illus- tration of these procedures is presented to examine the integration between the Australian and the Japanese bond markets, and the USA and the UK bond markets, changed over the period. The proposed algorithms are also applicable to full-order vector discrete lag (VDL) filtering with a forgetting factor and an intercept. Copyright © 2006 Andrew H. Chen et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. 1. Introduction Statistical filter researchers for financial time-series systems are often concerned that the coefficients of their established filters may not be constant over time, but vary when the filters are disturbed by changes arising from outside environmental factors. This concern has motivated researchers to develop sequential estimation algorithms that allow users to update subset time series filters at consecutive time instants, and allow for the coefficients to slowly evolve, and then can show