A Classification Approach to Modeling Financial Time Series

In this paper, several classification methods are applied for modeling financial time series with the aim to predict the trend of successive prices. By using a suitable embedding technique, a pattern of past prices is assigned a class if the variation of the next price is over, under or stable with respect to a given threshold. Furthermore, a sensitivity analysis is performed in order to verify if the value of such a threshold influences the prediction accuracy. The experimental results on the case study of WTI crude oil commodity show a good classification accuracy of the next (predicted) trend, and the best performance is achieved by the K-Nearest Neighbors classification strategy.

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