Efficient prediction of exchange rates with low complexity artificial neural network models

Abstract

In recent years forecasting of financial data such as interest rate, exchange rate, stock market and bankruptcy has been observed to be a potential field of research due to its importance in financial and managerial decision making. Survey of existing literature reveals that there is a need to develop efficient forecasting models involving less computational load and fast forecasting capability. The present paper aims to fulfill this objective by developing two novel ANN models involving nonlinear inputs and simple ANN structure with one or two neurons. These are: functional link artificial neural network (FLANN) and cascaded functional link artificial neural network (CFLANN). These have been employed to predict currency exchange rate between US$ to British Pound, Indian Rupees and Japanese Yen. The performance of the proposed models have been evaluated through simulation and have been compared with those obtained from standard LMS based forecasting model. It is observed that the CFLANN model performs the best followed by the FLANN and the LMS models.