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Exchange Rate Predictions in International Financial Management by Enhanced GMDH Algorithm

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  • Josef Taušer
  • Petr Buryan

Abstract

Exchange rate forecasting is an important financial problem that is receiving increasing attention nowadays especially because of its difficulty and host of practical applications in globalising world of today. The paper presents an enhanced MIA-GMDH-type network, discusses its design methodology and carries out some numerical experiments in the field of exchange rate forecasting. The method presented in this paper is an enhancement of self-organizing polynomial Group Method of Data Handling (GMDH) with several specific improved features - coefficient rounding and thresholding schemes and semi-randomized selection approach to pruning. The experiments carried out include exchange rate prediction and hedging case study where the predictions were used for financial management decision simulation of a virtual company. The results indicate, that the method shows promising potential of self-organizing network methodology. This implies that the proposed modelling approaches can be used as a feasible solution for exchange rate forecasting in financial management.

Suggested Citation

  • Josef Taušer & Petr Buryan, 2011. "Exchange Rate Predictions in International Financial Management by Enhanced GMDH Algorithm," Prague Economic Papers, University of Economics, Prague, vol. 2011(3), pages 232-249.
  • Handle: RePEc:prg:jnlpep:v:2011:y:2011:i:3:id:398:p:232-249
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    More about this item

    Keywords

    GMDH; self-organizing polynomial networks; time series analysis; exchange rate prediction; FX hedging;

    JEL classification:

    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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