Neural Networks in Investments Essay example - 2681 Words

Neural Networks in Investments I. ABSTRACT Investment managers often find themselves overwhelmed with the large amount of data obtained from the financial markets. Most of the data available is numeric and noisy in nature, making the decision-making process harder. These decisions usually rely on the integration of statistical measures that attempt to compress much of the data and qualitative depictions such as graphs and bar charts with news events and other pertinent information. Investment decisions usually involve non-linear relationships among the various components of the data. Computers in general, are very adept at dealing with large amounts of numeric information. However, some algorithms are crucial in analyzing and†¦show more content†¦At the simplest level, neural networks are a new way of analyzing data. The revolutionary aspect of neural networks is their ability to learn and trace the complex patterns and trends in data. Neural networks are made up of neurons and behave like the human brain, and has th e ability to apply knowledge from past experience to new problems. Neural networks acquire this knowledge by training on a set of data. After the network has been trained and validated, the model may be applied to data it has not seen previously for prediction, classification, time series analysis or data segmentation. Unlike traditional statistical methods, neural networks do not require assumptions about the model form. A statistical analysis requires a certain form to be assumed such as linearity, which characterizes relationships between variables. Neural networks are more tolerant of imperfect data, such as the presence of missing values or other data quality problems. Neural networks perform better than traditional statistical methods when the model form is unknown or nonlinear, or when the problems are complex with highly inter-related relationships. In a dynamic environment, neural networks are flexible tools and have the capacity to learn rapidly and change quickly. As the data values and outcomes change, the model quickly learns and adapts itself. Rule based systemsShow MoreRelated Artificial Intelligence and Investing Essay1648 Words   |  7 Pagesmoney to an endeavour with the exception of obtaining profit. Investing activities require data identification, asset valuation (the process of determining the worth of something), and risk management (the process of managing the uncertainty in investment decision-making). Artificial intelligence techniques can be applied to financial investing, especially in the areas of credit risk assessment and stock valuation. 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