3rd International Conference and Workshops on Recent Advances and Innovations in Engineering, 22-25 November 2018

(IEEE Conference Record # 43534)

FORECASTING FOREIGN EXCHANGE RATE

USING ROBUST LAGUERRE NEURAL
NETWORK
Santosh Kumar Nanda
Analytics and Consulting, FLytxt
Mobile Solution Pvt. Ltd., Trivandrum,
695581
Rahul Vyas H K Vamshidhar
Analytics and Consulting, FLytxt Analytics and Consulting, FLytxt
Mobile Solution Pvt. Ltd., Mumbai, Mobile Solution Pvt. Ltd., Trivandrum,
400705 695581

Kerala, India Maharashtra, India Kerala, India

santosh.nanda@flytxt.com rahul.vyas@flytxt.com vamshidhar.krishnudu@flytxt.com

Abstract— In this article, single layer based functional basis
neural network has been used for foreign exchange rate
prediction. In general, foreign exchange rate problem is one of
the most complex problems with high non linearity and data
irregularity. From many studies it is found that foreign
exchange rate prediction always fluctuates with economic
growth, interest rate and influence rates and therefore it is very
difficult for researcher to predict foreign exchange rate.
Therefore, foreign exchange rate prediction becomes a
challenging task for every researcher for both academic and
industrial communities. In this article two type of single layer
functional link artificial neural network Functional-link
Artificial Neural Network (FLANN) and Laguerre Polynomial
Equation ( LAPE) were applied to forecast foreign exchange
data. With high data irregularity, FLANN and LAPE both the
models provide extremely precise outcome for complex time
series model. The single layered based functional basis neural
network architectures results matched strongly with ARIMA
with very less Mean Square Error (MSE). From the Simulation
study, single layer based functional basis neural network models
provide improved results compare to ARIMA model with less
Root Mean Square Error (RMSE) and performs as universal
approximator.
Keywords— Autoregressive Integrated Moving Average
(ARIMA), Autocorrelation Function, Machine Learning, Artificial
Neural Network (ANN), FLANN, LAPEs
I. INTRODUCTION
Evaluating the forthcoming transforms in exchange rate is the
major alarm of strategy makers and economist since it
participates a significant responsibility in the economy [1].
Hence predicting of Exchange Rate is an important and
interesting assignment for Data Scientist, Academic
Investigators and industry practitioners. From literature it
was found, a variety of theoretical models counting both
econometric and time-series methodologies have been
recommended to model and estimate exchange rates.
Unluckily, experimental or statistical model results often fail
to predict in high extrapolation dimension. However, all
statistical models examined in [1, 2] are linear, it is likely to
inference that exchange rate data contain nonlinearities
which may not well utilize and may not have good prediction
using linear models. However, the linear randomness of
exchange rates has been created by many modifications [3-
7]. Considerable study efforts have been committed to
investigate the nonlinearity of the exchange rate data and to
improve detailed nonlinear models to progress exchange rate
predicting. For that reason submission of nonlinear models
becomes more indispensable since nonlinear representations
can forecast the time series variables with advanced precision
than linear models. Artificial neural network methods are
largely acknowledged as nonlinear models for time series
prediction as they can perform well high data irregularity and
data non linearity.
However, earlier exchange rate prediction was made
by ARMA models as considering a time series problem. As
most of the economic time series are mostly nonlinear in
nature, ARIMA model cannot adjust this type of nonlinear
patterns and however ARIMA model failed to give good
prediction result. To staggered this difficulties ANN models
are appropriate alternate of ARMA models. Artificial Neural
networks considered as robust models for forecasting
exchange rates as reported by numerous investigators. Rout
et al. 2017 [8, 9] have originate that neural networks are better
than random walk models in forecasting the Deutsche
mark/US dollar (DEM/USD) exchange rate. Khairalla et al.
2017 [10] extends a useful machine learning algorithm to
come across the finest neural network propose in forecasting
financial data. Narula et al. 2015 [11] employ both feed-
forward and single layer neural networks to forecast five
foreign exchange rates and establish very good result with
single layer neural network. Equally, Hamdi et al. 2016 [12]
compares ARIMA models with neural networks models in
forecasting financial data and shows considerably superior
results with the functional neural network model. However,
user-friendliness of hidden layer in ANN architecture
enhances the computational difficulty. Therefore single layer
based Artificial Neural Network is needed [11,12].
In this research article, the authors are investigating
the impending of combining multiple neural network models
e.g. Functional Link Artificial Neural Network (FLANN),

 978-1-5386-4525-3/18/$31.00 ©2018 IEEE

Laguerre Polynomial Neural Network (LANN) for time
series forecasting. This research principle is to show that, by
rightfully combining diverse neural network forecasters,
forecasting performance of the individual network can be
enhanced. The collection of several models (e.g. FLANN,
LANN etc) to form an ensemble of networks can be an
successful way to beat the problems connected with the keep-
the-best single network model. In calculation to provide
insights in the submission of ensemble methods to exchange
rate forecasting, the most important contribution of this
research article is to construct novel methods to form neural
network ensembles. In this research article, it is also evaluate
many supplementary principled combining methods and
advocate the best behavior to construct neural collections for Fig.1. Architecture of Functional Link Artificial Neural
time series forecasting. The authors are believed that the Network
methodology developed in this paper will be functional for
universal purposes of time series forecast. B. Laguerre Artificial Neural Network
The other parts of the paper are arranged as follows. Comparable to (FLANN), Laguerre Neural Network (LaNN)
In second section, the functional basis network models is a single layer perceptron network with functional
conversed. In the section that follows, the research expansion unit and presented in Fig. 2. In LaNN, a functional
expansion component is used with Laguerre polynomial
methodology is covered. This includes explanation of the
function [17], where there are N inputs. In LaNN architecture,
data and a detailed discussion of the functional basis neural with the Laguerre functional development, the dimension of
network ensemble designs employed. The final two sections input pattern is enhanced. The input pattern in LaNN is
contain the model prediction results and conclusions expanded through the Laguerre polynomials to boost its
demonstration in an advanced dimensional space
II. FUNCTIONAL BASIS NEURAL NETWORK
In general, Artificial Neural Network is a nonlinear system
having potential to solve multiclass classification problem.
However, availability of hidden layer in neural network,
somehow extend its computational cost. To avoid this
problem, many functional basis perceptron network has been
proposed. The first kind of FBPN is Polynomial perceptron
is proposed in 1993 by Xiang et al.. Xiang explained FBPN
is a single-layer neural network architechure and has less
computational complexity compared to MLP(Multi-Layer
Perceptron) architechure. The additional functional basis
perceptron network for illustration FLANN and LaNN has
been established and performance well balanced to MLP
architecture.
Fig.2. Model architecture of Laguerre Artificial Neural
A. Functional Link Artificial Neural Network Network
Functional Link Artificial Neural Network is a single layer
neural architecture and proposed by Patra et al. in 1999[13- Laguerre neural network is developed using Laguerrre
14]. It is basically extension of functional basis perceptron polynomial function and Laguerre differential equation
neural network proposed by Xiang et al[15]. The FLANN which is defiend as:
framework is represented in Figure 1. xy  (1  x) y  ny  0 (1)
In this FLANN structure, the expansion block
design with a functional model characterized with a subset of Here n is a positive integer. Laguerre polynomials Lpn(X) ,
orthogonal trigonometrical sin and cos functions. For where n=0,1,2…. are the soultion to the laguerre differntial
illustration, considering a high multi-dimensional input equation. The polynomials are generated using a orthogonal
pattern X = [x1, x2, … xN]T. The defined input samples then set on the interval 0<x<∞. The first few Laguerre
represented as X∗ = [x1 cos(πx1) sin(πx1) ··· x2 cos(πx2) polynomials are:
Lp0(x)=1
sin(πx2) ···, x2 cos(πx2) sin(πx2) ··· x1×x2…×xN]T . This X∗ is
then used directly in the system to predict the output of the Lp1(x)=-x+1
model. The Back Propagation algorithm, which is used to
update the network. The reason for the use of the
trigonometric functions in the FLANN model is provided in Lp2(x)=x2/2-2x+1
[13,16]
Lp3(x)=-x3/6+3x2/2-3x+1
 Lp4(x)=x4/24-2x3/3+3x2-4x+1  N 
Lp5(x)=-x5/120+5x4/24-5x3/3+5x2-5x+1 (2)
O i  tanh   w i  X i 
 i 1  (5)
III. FUNCTIONAL BASIS ARTIFICIAL NEURAL NETWORK
BASED FORIEGN-EXCHANGE PREDICTION MODEL Step 6: Computation of the model output error
The model error was calculated as ei  d i  Oi . It may be
In this research article, a novel single layer architecture based seen that the network produces a scalar output.
Laguerre Artificial Neural Network is propose in order to find
appropriate results. The configuration of the proposed model Step 7: Updating the model weight vectors
is as follows: Using gradient descend, the weight matrixes are updated
Step-1: Data Filtration: As the foreign exchange data has
some missing data. Therefore, moving average is use to deal Wk 1  Wk  ek Wk
(6)
with missing data first. For the propose model, a weighting Where  is the learning factor. A momentum parameter 
moving average has been used: may add to progress the convergence.

kYM  (k  1)Y( M 1)  ...  2Y( M k  2)  Y( M k 1)
WMA 
k  (k  1)  ....  2  1
(3)
Where Y is the financial data and k is the number of day.
Step-2: Let the system has X input. Then it should
normalized before it is selected for process.
Wk 1  Wk  ek Wk  ek Wk 1
(7)
Step 8: If error   (0.001) then refer to Step 8, or else refer
to Step 3.
Step 9: Following the learning is comprehensive, the weights
were updated and the model can be used for testing
IV. SIMULATION RESULT AND DISSCUSSION

X  X Max In this segment, the projecting capabilities of the developed

X Normalized  model are compared with Functional Link Artificial Neural
X Max  X Min (4) Network (FLANN), and auto-regressive integrated moving
Step-3: Initialize the weight, bias and the error threshold average (ARIMA) using recognized real data sets: the Indian
limit: All the parameters randomly selected. The first few rupee /US dollar exchange rate data. The Mean Average
values of the weight vectors wk, for k=1, 2,…l, where ‘k’ is Percentage Error (MAPE), R2 and RMSE (Root Mean
the index of the weight vector. Squared Error), which are calculated from the following
equations, are engaged as performance markers in order to
wk and bias b were initialized to random number using rand calculate forecasting performance of defined model.
function and given as wk (0) 1 N  
 
MAPE     Yt  Y t   100 
wk  wk (0) N  i 1    (8)
b  b(0)
After weight and bias initialization, an error tolerance
1  N  
2 (9)


parameter  > 0 has to be set. For this propose model  is to RMSE 
   t
N  i 1 
Y  Y t



set with 0.002 value 
Step 4: Generate functional blocks  SSE 
R 2  1  
The input functional block for FLANN architecture is as  SST 
2 2
follows: N
 
 N
 
SSE    Yi  Yi  SST    Yi  Yavg 
Xi=[ 1, x1,sin(πx1),cos(πx1), x2, sin(πx2), cos(πx2).. x1× x2… i 1   i 1   (10)
xN]

LaNN the functional block is completed as follows:

Xi=[1, x1,1(x1), x2, 1(x2),....x1× x2… xN]
where, 1= Lp1 (x) = 1+x, 2= Lp2 (x)= x2/2-2x+1 etc.

Step 5: Estimation of the proposed model output

The output of the developed functional based neural network

models (FLANN and LaNN), was calculated as follows:
In this article, ARIMA model has been initially developed.
Many of ARIMA (p,d,q) model has been developed using R
software package and finally ARIMA (1,0,1) model selected.
The proposed model LaNN and FLANN developed using
Python and MATLAB simulation environment. The entire
models are simulated using number of training sample and
number of testing sample. Here 13.09.2017 to 31.05.2018
data has been selected for training purpose and 1.06.2018 to
13.07.2018 data is selected for testing purpose. Fig 3
represented the training performance of all model.

Fig.6. ACF graph of developed ARIMA (101) model

From the simulation result it has been observed that LaNN

has better performance compare to FLANN. Both the model
tested for 30 samples. From the Mean Square Plot, it is found
that LaNN has better convergence as compare to FLANN.
Fig. 7 Represents the MSE plots of both the model.
Fig. 7. Mean Square Plot of proposed LaNN and FLANN

Fig.3. Training Performance of ARIMA (1,0,1), FLANN and

LaNN

Before discuss the analysis of FLANN and LaNN, let discuss

the result of ARIMA (1,0,1) model. According to Fig 3 ,
during training process, ARIMA (1,0,1) has better
performance compare to FLANN and LaNN, but during
testing process, ARIMA (1,0,1) has very worst performance.
This result of ARIMA is one of the reason for motivation to
develop single layer neural network architecture. Fig 4, 5 and
Fig 6 represent the ARIMA model result.

Fig. 4 ARIMA (101) model for time series forecasting

Fig. 8. Testing performance or validation of ARIMA(1,0,1)

LaNN and FLANN

Fig.5. PACF graph of developed ARIMA (101) model


For good comparison, some performance criteria like MAD,
RMSE, MAPE, R2 has been taken. Higher the R2 value, lower
MAD, lower MAPE and lower RMSE value are the criteria.
For making ranking between these models, MAPE < 0.15,
MAD <0.1, R2 > 0.95, RMSE < 0.15 is considered for the
best model. Fig.8 represent the performance of ARIMA
(101), FLANN and LaNN for 41 number of test data set.
Table 1 represents proposed model performance analysis and
it is found that LaNN has MAPE of 0.14, MAD value of 0.09
, R2 value of 0.95 and RMSE value of 0.133 which are very
good performance result and LaNN has RANK-1 between all
the models.
Table-1 Performance Analysis of ARIMA (1,0,1), FLANN
and proposed Laguerre Neural Network
Performance ARIMA FLANN LaNN
Index (101)
(TESTING)
MAPE 1.326803 0.16568 0.146787
MAD 0.907472 0.112913 0.099461
R2 -1.92952 0.922531 0.952917
RMSE 1.055711 0.171676 0.133837
RANKING 3 2 1 [10].
RANK-1 (MAPE < 0.15, MAD <0.1, R2 > 0.95,
RMSE < 0.15)
V. CONCLUSION
In this research study, dollar exchange rate evaluation is
predict using a very high performance statistical model
ARIMA (1, 0, 1) and two diverse kinds of Artificial Neural
Network (ANNs) models, FLANN and LaNN. From this
present exploration, it has been found that, during training
process ARIMA has good approximate compare to FLANN
and LaNN, where ARIMA is totally failed to estimate in
testing phase. In more details, for larger extrapolation,
ARIMA model failed to estimate, where FLANN and LaNN
do best with their learning mechanism. Compare between
FLANN and LaNN, LaNN has better accuracy and high
convergence and it can be applied to other complex financial
problem.
ACKNOWLEDGMENT
The authors express thanks to Dr. Vinod Vasudevan, CEO
of Flytxt Mobile Solution Pvt Ltd and Dr. Prateek Kapadia,
CTO of Flytxt Mobile Solution Pvt Ltd for their supervision,
valuable suggestions, giving research facilities and
encouragement.
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