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Artificial Neural Networks in Finance Modelling

Author

Listed:
  • Crescenzio GALLO

    (Università di Foggia-Dipartimento di Scienze Economiche, Matematiche e Statistiche)

Abstract
The study of Artificial Neural Networks derives from first trials to translate in mathematical models the principles of biological “processing”. An Artificial Neural Network deals with generating, in the fastest times, an implicit and predictive model of the evolution of a system. In particular, it derives from experience its ability to be able to recognize some behaviours or situations and to “suggest” how to take them into account. This work illustrates an approach to the use of Artificial Neural Networks for Financial Modelling; we aim to explore the structural differences (and implications) between one- and multi- agent and population models. In one-population models, ANNs are involved as forecasting devices with wealth-maximizing agents (in which agents make decisions so as to achieve an utility maximization following non- linear models to do forecasting), while in multi-population models agents do not follow predetermined rules, but tend to create their own behavioural rules as market data are collected. In particular, it is important to analyze diversities between one-agent and one-population models; in fact, in building one-population model it is possible to illustrate the market equilibrium endogenously, which is not possible in one-agent model where all the environmental characteristics are taken as given and beyond the control of the single agent. A particular application we aim to study is the one regarding “customer profiling”, in which (based on personal and direct relationships) the “buying” behaviour of each customer can be defined, making use of behavioural inference models such as the ones offered by Artificial Neural Networks much better than traditional statistical methodologies.

Suggested Citation

  • Crescenzio GALLO, 2005. "Artificial Neural Networks in Finance Modelling," Experimental 0509002, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpex:0509002
    Note: Type of Document - pdf; pages: 13.
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/exp/papers/0509/0509002.pdf
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    References listed on IDEAS

    as
    1. D'Ecclesia, Rita Laura & Gallo, Crescenzio, 2002. "Price-caps and Efficient Pricing for the Electricity Italian Market," MPRA Paper 10048, University Library of Munich, Germany.
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    1. Crescenzio Gallo & Giancarlo De Stasio & Cristina Di Letizia, 2006. "Artificial Neural Networks in Financial Modelling," Quaderni DSEMS 02-2006, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia.

    More about this item

    Keywords

    Artificial Neural Network; Financial Modelling; Customer Profiling;
    All these keywords.

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments

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