Bilinear Input Normalization for Neural Networks in Financial Forecasting

• URL: http://arxiv.org/abs/2109.00983v1
• Date: Wed, 1 Sep 2021 07:52:03 GMT
• Title: Bilinear Input Normalization for Neural Networks in Financial Forecasting
• Authors: Dat Thanh Tran, Juho Kanniainen, Moncef Gabbouj, Alexandros Iosifidis
• Abstract summary: We propose a novel data-driven normalization method for deep neural networks that handle high-frequency financial time-series. The proposed normalization scheme takes into account the bimodal characteristic of financial time-series. Our experiments, conducted with state-of-the-arts neural networks and high-frequency data, show significant improvements over other normalization techniques.
• Score: 101.89872650510074
• License: http://arxiv.org/licenses/nonexclusive-distrib/1.0/
• Abstract: Data normalization is one of the most important preprocessing steps when building a machine learning model, especially when the model of interest is a deep neural network. This is because deep neural network optimized with stochastic gradient descent is sensitive to the input variable range and prone to numerical issues. Different than other types of signals, financial time-series often exhibit unique characteristics such as high volatility, non-stationarity and multi-modality that make them challenging to work with, often requiring expert domain knowledge for devising a suitable processing pipeline. In this paper, we propose a novel data-driven normalization method for deep neural networks that handle high-frequency financial time-series. The proposed normalization scheme, which takes into account the bimodal characteristic of financial multivariate time-series, requires no expert knowledge to preprocess a financial time-series since this step is formulated as part of the end-to-end optimization process. Our experiments, conducted with state-of-the-arts neural networks and high-frequency data from two large-scale limit order books coming from the Nordic and US markets, show significant improvements over other normalization techniques in forecasting future stock price dynamics.

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