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Economic Modelling
journal homepage: www.elsevier.com/locate/ecmod
PSO-based high order time invariant fuzzy time series method: Application to stock
exchange data
Erol Egrioglu
Ondokuz Mays University, Department of Statistics, Turkey
a r t i c l e
i n f o
Article history:
Accepted 18 February 2014
Available online xxxx
Keywords:
Fuzzy time series
Particle swarm optimization
Fuzzy c-means
Forecasting
Dene fuzzy relation
a b s t r a c t
Fuzzy time series methods are effective techniques to forecast time series. Fuzzy time series methods are based
on fuzzy set theory. In the early years, classical fuzzy set operations were used in the fuzzy time series methods. In
recent years, articial intelligence techniques have been used in different stages of fuzzy time series methods. In
this paper, a novel fuzzy time series method which is based on particle swarm optimization is proposed. A high
order fuzzy time series forecasting model is used in the proposed method. In the proposed method, determination of fuzzy relations is performed by estimating the optimal fuzzy relation matrix. The performance of the proposed method is compared to some methods in the literature by using three real world time series. It is shown
that the proposed method has better performance than other methods in the literature.
2014 Elsevier B.V. All rights reserved.
1. Introduction
Fuzzy time series methods have different approaches to uncertainty
from probabilistic statistical methods. Classical time series analysis
methods are probabilistic methods, and they need some strict assumptions. Moreover, probabilistic methods don't take into consideration
fuzziness. However, some real life time series contain fuzziness. Because
of this fact, various fuzzy time series methods were proposed in the literature. Fuzzy time series methods do not need any assumptions like
normality and linearity.
Fuzzy time series methods were rst dened in Song and Chissom
(1993a). First denitions and methods were based on fuzzy set theory
and some fuzzy set operations. Song and Chissom (1993a) dened
two different fuzzy time series types: time variant and time invariant.
The rst time invariant fuzzy time series method was proposed in
Song and Chissom (1993b). There have been a lot of studies about
time invariant fuzzy time series in the literature. But there have been
a limited number of studies about time variant fuzzy time series.
When fuzzy time series methods are examined, it can be said that
they consist of three stages: fuzzication, determining fuzzy relation
and defuzzication. Fuzzy time series methods are based on different
forecasting models. The forecasting models can be rst order or high
order. When the rst order models are used, it is assumed that fuzzy
time series is caused by one order lagged fuzzy time series. Similarly,
when nth order fuzzy time series forecasting model is used, fuzzy
time series are caused by 1,2,,n order lagged fuzzy time series.
In the literature, many methods are used for determining fuzzy relations. These methods are using fuzzy logic group relation tables, articial neural networks, fuzzy relation matrices obtained from some
fuzzy set operations, particle swarm optimization and genetic
algorithms. Chen (1996, 2002), Lee et al. (2007, 2008), Duru et al.
(2010), Lee et al. (2013), Uslu et al. (2013), Bulut (2014) and Chen
and Chen (2014) used fuzzy logic group relation tables. Aladag et al.
(2009), Egrioglu et al. (2009a,b), Yolcu et al. (2013) and Aladag
(2013) used some type of articial neural networks. Song and
Chissom (1993b, 1994) used a fuzzy relation matrix obtained from
some fuzzy set operations. Egrioglu (2012) used a fuzzy relation matrix
obtained from a genetic algorithm and Aladag et al. (2012) used a fuzzy
relation matrix obtained from particle swarm optimization. Aladag et al.
(2012) and Egrioglu (2012) methods are based on rst order fuzzy time
series forecasting models. The high order models are needed to forecast
many real life time series. Chen (2002), Lee et al. (2007, 2008), Kuo et al.
(2009, 2010), Park et al. (2010), Chen and Chung (2006), Hsu et al.
(2010), Egrioglu et al. (2009a,b, 2010), Aladag et al. (2009), Chen
(2013), Qiu et al. (2013), and Jilani and Burney (2008) studies are
based on the high order fuzzy time series forecasting model. Some
methods which are used to determine fuzzy relations didn't take into
consideration membership values of fuzzy sets. Song and Chissom
(1993b), Yolcu et al. (2013), Yu and Huarng (2010), Egrioglu (2012)
and Aladag et al. (2012) papers took into consideration membership
values of fuzzy sets.
In this study, a novel fuzzy time series method is proposed. The proposed method uses the fuzzy c-mean method in fuzzication stage, and
the particle swarm optimization method in the determining fuzzy relation stage. The proposed method is based on the high order fuzzy time
series forecasting model. The proposed method is an improved version
of the Aladag et al. (2012) method. Aladag et al. (2012) was based on
the rst order fuzzy time series forecasting model as distinct from the
proposed method. Particle swarm optimization is summarized in the
second section of this paper. In the third section, the particulars of the
proposed method are given. The application results are given in the fourth
section. The results are discussed in the last section of the paper.
http://dx.doi.org/10.1016/j.econmod.2014.02.017
0264-9993/ 2014 Elsevier B.V. All rights reserved.
Please cite this article as: Egrioglu, E., PSO-based high order time invariant fuzzy time series method: Application to stock exchange data, Econ.
Model. (2014), http://dx.doi.org/10.1016/j.econmod.2014.02.017
Step 4. Let c1 and c2 represent cognitive and social coefcients, respectively, and w is the inertia parameter. Let (c1i, c1f), (c2i, c2f), and
(w1, w2) be the intervals which include possible values for c1, c2
and w, respectively. In each iteration, these parameters are calculated by using the formulas given in Eqs. (5), (6) and (7).
c1 c1 f c1i
t
c1i
maxt
maxtt
c2i
c2 c2 f c2i
maxt
maxtt
w1
maxt
Gbest pg;1 ; pg;2 ; ; pg;d
w w2 w1
t1
t1
where rand1 and rand2 are generated random values from the
interval [0,1].
Step 6. Steps 3 to 5 are repeated until a predetermined maximum iteration number (maxt) is reached.
3. The proposed method
There have been a lot of studies about fuzzy time series methods in
the literature. The most important differences in fuzzy time series
methods from classical methods are membership values and the advantages of membership values. Although the defuzzication process is
performed in the fuzzy time series methods, obtaining fuzzy forecasts
Please cite this article as: Egrioglu, E., PSO-based high order time invariant fuzzy time series method: Application to stock exchange data, Econ.
Model. (2014), http://dx.doi.org/10.1016/j.econmod.2014.02.017
10
and it is called the nth order fuzzy time series forecasting model.
To obtain forecasts from a high order model (10) can be used in intersection operations. After R fuzzy relation matrix is obtained, fuzzy
forecasts can be calculated by using Eq. (11).
F t F tn F t2 F t1R
11
r
1 Xn
^t 2
y y
t1 t
n
12
vi
uij x j
j1
n
X
13
uij
j1
uij
1
12 =
0
1
fsn
d x j ; vi
X
@
A
d x j ; vk
k1
14
Please cite this article as: Egrioglu, E., PSO-based high order time invariant fuzzy time series method: Application to stock exchange data, Econ.
Model. (2014), http://dx.doi.org/10.1016/j.econmod.2014.02.017
Table 1
Forecasting results for IMKB data set.
Date
Test set
Chen (1996)
Huarng
(2001)a
Huarng
(2001)b
Huarng and Yu
(2006)
Cheng et al.
(2008)
Yolcu et al.
(2013)
Proposed
method
23.12.2008
24.12.2008
25.12.2008
26.12.2008
29.12.2008
30.12.2008
31.12.2008
26,294
26,055
26,059
26,499
26,424
26,411
26,864
RMSE
MAPE
MAE
26,410
26,410
26,410
26,410
26,410
26,410
26,410
261.01
0.75%
197.14
26,400
26,400
26,400
26,400
26,400
26,400
26,400
259.76
0.75%
198.57
26,200
26,200
26,200
26,200
26,200
26,200
26,200
310.47
0.96%
254
26,100
26,367
26,100
26,100
26,500
26,500
26,500
251.24
0.80%
210.71
26,091
26,091
26,091
26,091
26,608
26,608
26,091
354.72
0.98%
261.85
26,390
26,390
26,390
26,390
26,390
26,390
26,390
258.87
0.76%
200
26,274
26,273
26,339
26,337
26,565
26,429
26,460
219.27
0.67%
177.57
26,342
26,342
26,342
26,342
26,342
26,342
26,639
189.60
0.62%
164.42
a
b
xi;1
xi;2
xi;fsn1
xi;fsn2
xi;fsn1fsn1
xi;fsn1fsn2
xi;fsn
xi;2fsn 7
7:
5
xi;fsnfsn
1 0:5
R 4 0:1 0
0:1 0
3
0:5
1 5:
1
F t F t2 F t1 R
2
^F t 0:5; 0:3; 0
4
1 0:5
0:1 0
0:1 0
3
0:5
1 5
1
max min0:5; 1; min0:3; 0:1; min0; 0:1
max min0:5; 0:5; min0:3; 0; min0; 0
max min0:5; 1; min0:3; 0:1; min0; 0:1
max0:5; 0:1; 0 max0:5; 0; 0 max0:5; 0:1; 0
^F t 0:5 0:5 0:5:
7500
7000
6500
6000
The rst time series is the data of Index 100 for the stocks and bonds
exchange market of Istanbul (IMKB). Observations of IMKB are obtained
daily between 03/October/2008 and 31/December/2008. A sequence
chart of IMKB is given in Fig. 3. The time series has 59 observations.
Please cite this article as: Egrioglu, E., PSO-based high order time invariant fuzzy time series method: Application to stock exchange data, Econ.
Model. (2014), http://dx.doi.org/10.1016/j.econmod.2014.02.017
Table 2
Forecasting results for TAIFEX data set.
Date
Test set
Aladag (2013)
Proposed method
10.09.1998
11.09.1998
.14.09.1998
15.09.1998
16.09.1998
17.09.1998
18.09.1998
19.09.1998
21.09.1998
22.09.1998
23.09.1998
24.09.1998
25.09.1998
28.09.1998
29.09.1998
30.09.1998
6709.75
6726.50
6774.55
6762.00
6952.75
6906.00
6842.00
7039.00
6861.00
6926.00
6852.00
6890.00
6871.00
6840.00
6806.00
6787.00
RMSE
MAPE
MAE
6621.43
6677.48
6709.63
6732.02
6753.38
6756.02
6804.26
6842.04
6839.01
6897.33
6896.83
6919.27
6903.36
6895.95
6879.31
6878.34
93.5
1.09%
74.62
6917.40
6852.23
6805.71
6762.37
6793.06
6784.40
6970.74
6977.22
6874.46
7126.05
6862.49
6944.36
683,188
6843.24
6858.45
6825.64
102.96
1.14%
78.08
6850.00
6850.00
6850.00
6850.00
6850.00
6850.00
6850.00
6850.00
6850.00
6850.00
6850.00
6850.00
6850.00
6850.00
6850.00
6850.00
83.58
0.96%
65.62
6745.45
6757.89
6731.76
6722.54
6753.72
6761.54
6857.27
6898.97
6853.07
6951.95
6896.84
6919.94
6884.99
6894.10
6866.17
6865.06
80.02
0.87%
60.19
6750
6750
6850
6850
6850
6850
6850
6850
6950
6850
6850
6850
6850
6850
6850
6750
72.55
0.82%
56.37
6778
6778
6778
6778
6778
6856
6925
6856
6856
6856
6856
6856
6856
6856
6856
6778
74.94
0.75%
52.05
6826
6741
6741
6741
6963
6963
6894
6894
6894
6894
6894
6894
6894
6894
6826
6926
66.08
0.73%
49.78
if Table 2 is examined, it is clear that the proposed method outperforms the other methods according to RMSE, MAPE and MAE criteria.
The rst 52 and the last 7 observations are used as the training and the
test sets, respectively.
In Yolcu et al. (2013), IMKB data set was forecasted by Song and
Chissom (1993b), Chen (1996), and Huarng (2001) distribution and average based methods, and Huarng and Yu (2006), and Cheng et al.
(2008) methods. The forecasts and RMSE, mean absolute percentage
error (MAPE) and mean absolute error (MAE) values of these methods
are given in Table 1. MAPE and MAE values are calculated by using Eqs.
(15)(16).
MAPE
MAE
^t
1 Xn yt y
t1
n
yt
15
1 Xn
^t j:
jy y
t1 t
n
16
The best forecasts are obtained from these methods in the following
situations: In Song and Chissom (1993b), the number of fuzzy sets is 12;
in Chen (1996), length of interval is 1200; in Huarng and Yu (2006)
ratio based method, ratio sample percentile is 0.5; in Cheng et al.
(2008), the number of fuzzy sets is 5; in Yolcu et al. (2013) method,
the number of fuzzy sets is 11 and the number of hidden layer neurons
is 5. In the Huarng (2001) distribution based method, length of interval
is 800; in average based method, length of interval is 200. Moreover, the
0; 8278
6 0; 2988
6
R6
6 0; 4846
4 0; 0000
0; 5778
0; 7949
0; 8823
0; 7052
0; 4821
0:2249
0; 8168
0; 2765
0; 8618
0; 5991
0; 4929
0; 5580
0; 3085
0; 0877
0; 6784
0; 4238
3
0; 0013
0; 0000 7
7
0; 8560 7
7
0; 5065 5
0; 7642
7600
7100
TAIEX
6600
6100
5600
5100
Table 3
The results obtained from all methods.
Method
RMSE
77.86
77.18
71.98
63.57
72.35
67.00
69.80
57.30
51.14
Please cite this article as: Egrioglu, E., PSO-based high order time invariant fuzzy time series method: Application to stock exchange data, Econ.
Model. (2014), http://dx.doi.org/10.1016/j.econmod.2014.02.017
method is applied to TAIFEX data, the best forecasts are obtained from
second order model and ve fuzzy sets. All forecasted results are given
in Table 2.
4.3. Taiwan Stock Exchange Capitalization Weighted Stock Index Application
Finally, the proposed method is applied to Taiwan Stock Exchange
Capitalization Weighted Stock Index (TAIEX) data between 01.01.2004
and 31.12.2004. The sequence chart of the time series is shown in
Fig. 5. The rst 205 observations are used as training set and the last
45 observations are used as a test set.
The forecast results produced by Song and Chissom (1993b), Chen
(1996, 2002), Huarng and Yu (2006), Huarng et al. (2007), Yu and
Huarng (2008), Aladag et al. (2009) and Chen and Chen (2011)
methods were taken from corresponding papers. When the proposed
method is applied to TAIEX data, the best forecasts are obtained from
the second order model and when seven fuzzy sets are used. All forecast
results are given in Table 3.
Moreover, the MAPE value of the proposed method for TAIEX data is
0.0069. It can be concluded that the proposed method outperforms the
other method for TAIEX data according to RMSE criterion. Also, the
MAPE value of the proposed method is very small. The sequence chart
of forecasts and test data is given in Fig. 6.
5. Conclusion and discussions
Determination of the fuzzy relation stage in the fuzzy time series
methods is very important for forecast performance. Aladag et al.
(2012) proposed a rst order fuzzy time series method. In this
paper, this method is successfully improved for a high order fuzzy
time series forecasting model. According to the application results,
the proposed method has better forecasting performance than
many other methods in the literature. Because the proposed method
is based on the high order fuzzy time series forecasting model, real
life time series can be well forecasted. Moreover, the proposed method takes into consideration all membership vales. It should not be
forgotten that the performance of the proposed method can change
for different data sets. It is not easy to say it will outperform other
methods for every data set. As a result of implementation, it can be
seen that the proposed method can produce good forecasts for the
three stock exchange data sets. Although the proposed method is improved to a high order form, the order selection is an important
problem for it. In future studies, order selection for the proposed
method can be achieved by using optimization techniques. If some
new techniques applied in the fuzzication and defuzzication
stages, a better forecasting performance could be obtained from the
proposed method. In the future, proposed method can be easily
modied for better forecasting performance and multivariate fuzzy
6200
Proposed Method
TAIEX Test Set
6100
6000
5900
5800
5700
5600
1
9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45
Fig. 6. The sequence chart of TAIEX data and forecasts of proposed method.
time series models. Although fuzzy time series methods can produce
good forecasts, the condence intervals for forecasts cannot be obtained. It can be said that this is a very big challenge for nonprobabilistic forecasting methods. Obtaining condence intervals of
forecasts for the proposed method will be considered in future
studies.
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Please cite this article as: Egrioglu, E., PSO-based high order time invariant fuzzy time series method: Application to stock exchange data, Econ.
Model. (2014), http://dx.doi.org/10.1016/j.econmod.2014.02.017