• Journal of Intelligence and Information Systems
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• v.23 no.4
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• pp.147-168
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• 2017

There have been many studies on accurate stock market forecasting in academia for a long time, and now there are also various forecasting models using various techniques. Recently, many attempts have been made to predict the stock index using various machine learning methods including Deep Learning. Although the fundamental analysis and the technical analysis method are used for the analysis of the traditional stock investment transaction, the technical analysis method is more useful for the application of the short-term transaction prediction or statistical and mathematical techniques. Most of the studies that have been conducted using these technical indicators have studied the model of predicting stock prices by binary classification - rising or falling - of stock market fluctuations in the future market (usually next trading day). However, it is also true that this binary classification has many unfavorable aspects in predicting trends, identifying trading signals, or signaling portfolio rebalancing. In this study, we try to predict the stock index by expanding the stock index trend (upward trend, boxed, downward trend) to the multiple classification system in the existing binary index method. In order to solve this multi-classification problem, a technique such as Multinomial Logistic Regression Analysis (MLOGIT), Multiple Discriminant Analysis (MDA) or Artificial Neural Networks (ANN) we propose an optimization model using Genetic Algorithm as a wrapper for improving the performance of this model using Multi-classification Support Vector Machines (MSVM), which has proved to be superior in prediction performance. In particular, the proposed model named GA-MSVM is designed to maximize model performance by optimizing not only the kernel function parameters of MSVM, but also the optimal selection of input variables (feature selection) as well as instance selection. In order to verify the performance of the proposed model, we applied the proposed method to the real data. The results show that the proposed method is more effective than the conventional multivariate SVM, which has been known to show the best prediction performance up to now, as well as existing artificial intelligence / data mining techniques such as MDA, MLOGIT, CBR, and it is confirmed that the prediction performance is better than this. Especially, it has been confirmed that the 'instance selection' plays a very important role in predicting the stock index trend, and it is confirmed that the improvement effect of the model is more important than other factors. To verify the usefulness of GA-MSVM, we applied it to Korea's real KOSPI200 stock index trend forecast. Our research is primarily aimed at predicting trend segments to capture signal acquisition or short-term trend transition points. The experimental data set includes technical indicators such as the price and volatility index (2004 ~ 2017) and macroeconomic data (interest rate, exchange rate, S&P 500, etc.) of KOSPI200 stock index in Korea. Using a variety of statistical methods including one-way ANOVA and stepwise MDA, 15 indicators were selected as candidate independent variables. The dependent variable, trend classification, was classified into three states: 1 (upward trend), 0 (boxed), and -1 (downward trend). 70% of the total data for each class was used for training and the remaining 30% was used for verifying. To verify the performance of the proposed model, several comparative model experiments such as MDA, MLOGIT, CBR, ANN and MSVM were conducted. MSVM has adopted the One-Against-One (OAO) approach, which is known as the most accurate approach among the various MSVM approaches. Although there are some limitations, the final experimental results demonstrate that the proposed model, GA-MSVM, performs at a significantly higher level than all comparative models.

• Journal of Intelligence and Information Systems
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• v.17 no.4
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• pp.157-173
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• 2011

As the Internet use explodes recently, the malicious attacks and hacking for a system connected to network occur frequently. This means the fatal damage can be caused by these intrusions in the government agency, public office, and company operating various systems. For such reasons, there are growing interests and demand about the intrusion detection systems (IDS)-the security systems for detecting, identifying and responding to unauthorized or abnormal activities appropriately. The intrusion detection models that have been applied in conventional IDS are generally designed by modeling the experts' implicit knowledge on the network intrusions or the hackers' abnormal behaviors. These kinds of intrusion detection models perform well under the normal situations. However, they show poor performance when they meet a new or unknown pattern of the network attacks. For this reason, several recent studies try to adopt various artificial intelligence techniques, which can proactively respond to the unknown threats. Especially, artificial neural networks (ANNs) have popularly been applied in the prior studies because of its superior prediction accuracy. However, ANNs have some intrinsic limitations such as the risk of overfitting, the requirement of the large sample size, and the lack of understanding the prediction process (i.e. black box theory). As a result, the most recent studies on IDS have started to adopt support vector machine (SVM), the classification technique that is more stable and powerful compared to ANNs. SVM is known as a relatively high predictive power and generalization capability. Under this background, this study proposes a novel intelligent intrusion detection model that uses SVM as the classification model in order to improve the predictive ability of IDS. Also, our model is designed to consider the asymmetric error cost by optimizing the classification threshold. Generally, there are two common forms of errors in intrusion detection. The first error type is the False-Positive Error (FPE). In the case of FPE, the wrong judgment on it may result in the unnecessary fixation. The second error type is the False-Negative Error (FNE) that mainly misjudges the malware of the program as normal. Compared to FPE, FNE is more fatal. Thus, when considering total cost of misclassification in IDS, it is more reasonable to assign heavier weights on FNE rather than FPE. Therefore, we designed our proposed intrusion detection model to optimize the classification threshold in order to minimize the total misclassification cost. In this case, conventional SVM cannot be applied because it is designed to generate discrete output (i.e. a class). To resolve this problem, we used the revised SVM technique proposed by Platt(2000), which is able to generate the probability estimate. To validate the practical applicability of our model, we applied it to the real-world dataset for network intrusion detection. The experimental dataset was collected from the IDS sensor of an official institution in Korea from January to June 2010. We collected 15,000 log data in total, and selected 1,000 samples from them by using random sampling method. In addition, the SVM model was compared with the logistic regression (LOGIT), decision trees (DT), and ANN to confirm the superiority of the proposed model. LOGIT and DT was experimented using PASW Statistics v18.0, and ANN was experimented using Neuroshell 4.0. For SVM, LIBSVM v2.90-a freeware for training SVM classifier-was used. Empirical results showed that our proposed model based on SVM outperformed all the other comparative models in detecting network intrusions from the accuracy perspective. They also showed that our model reduced the total misclassification cost compared to the ANN-based intrusion detection model. As a result, it is expected that the intrusion detection model proposed in this paper would not only enhance the performance of IDS, but also lead to better management of FNE.

• Journal of Intelligence and Information Systems
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• v.25 no.1
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• pp.127-137
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• 2019

Recidivism prediction has been a subject of constant research by experts since the early 1970s. But it has become more important as committed crimes by recidivist steadily increase. Especially, in the 1990s, after the US and Canada adopted the 'Recidivism Risk Assessment Report' as a decisive criterion during trial and parole screening, research on recidivism prediction became more active. And in the same period, empirical studies on 'Recidivism Factors' were started even at Korea. Even though most recidivism prediction studies have so far focused on factors of recidivism or the accuracy of recidivism prediction, it is important to minimize the prediction misclassification cost, because recidivism prediction has an asymmetric error cost structure. In general, the cost of misrecognizing people who do not cause recidivism to cause recidivism is lower than the cost of incorrectly classifying people who would cause recidivism. Because the former increases only the additional monitoring costs, while the latter increases the amount of social, and economic costs. Therefore, in this paper, we propose an XGBoost(eXtream Gradient Boosting; XGB) based recidivism prediction model considering asymmetric error cost. In the first step of the model, XGB, being recognized as high performance ensemble method in the field of data mining, was applied. And the results of XGB were compared with various prediction models such as LOGIT(logistic regression analysis), DT(decision trees), ANN(artificial neural networks), and SVM(support vector machines). In the next step, the threshold is optimized to minimize the total misclassification cost, which is the weighted average of FNE(False Negative Error) and FPE(False Positive Error). To verify the usefulness of the model, the model was applied to a real recidivism prediction dataset. As a result, it was confirmed that the XGB model not only showed better prediction accuracy than other prediction models but also reduced the cost of misclassification most effectively.

• Information Systems Review
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• v.16 no.3
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• pp.161-177
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• 2014

Corporate credit rating assessment consists of complicated processes in which various factors describing a company are taken into consideration. Such assessment is known to be very expensive since domain experts should be employed to assess the ratings. As a result, the data-driven corporate credit rating prediction using statistical and artificial intelligence (AI) techniques has received considerable attention from researchers and practitioners. In particular, statistical methods such as multiple discriminant analysis (MDA) and multinomial logistic regression analysis (MLOGIT), and AI methods including case-based reasoning (CBR), artificial neural network (ANN), and multiclass support vector machine (MSVM) have been applied to corporate credit rating.2) Among them, MSVM has recently become popular because of its robustness and high prediction accuracy. In this study, we propose a novel optimized MSVM model, and appy it to corporate credit rating prediction in order to enhance the accuracy. Our model, named 'GAMSVM (Genetic Algorithm-optimized Multiclass Support Vector Machine),' is designed to simultaneously optimize the kernel parameters and the feature subset selection. Prior studies like Lorena and de Carvalho (2008), and Chatterjee (2013) show that proper kernel parameters may improve the performance of MSVMs. Also, the results from the studies such as Shieh and Yang (2008) and Chatterjee (2013) imply that appropriate feature selection may lead to higher prediction accuracy. Based on these prior studies, we propose to apply GAMSVM to corporate credit rating prediction. As a tool for optimizing the kernel parameters and the feature subset selection, we suggest genetic algorithm (GA). GA is known as an efficient and effective search method that attempts to simulate the biological evolution phenomenon. By applying genetic operations such as selection, crossover, and mutation, it is designed to gradually improve the search results. Especially, mutation operator prevents GA from falling into the local optima, thus we can find the globally optimal or near-optimal solution using it. GA has popularly been applied to search optimal parameters or feature subset selections of AI techniques including MSVM. With these reasons, we also adopt GA as an optimization tool. To empirically validate the usefulness of GAMSVM, we applied it to a real-world case of credit rating in Korea. Our application is in bond rating, which is the most frequently studied area of credit rating for specific debt issues or other financial obligations. The experimental dataset was collected from a large credit rating company in South Korea. It contained 39 financial ratios of 1,295 companies in the manufacturing industry, and their credit ratings. Using various statistical methods including the one-way ANOVA and the stepwise MDA, we selected 14 financial ratios as the candidate independent variables. The dependent variable, i.e. credit rating, was labeled as four classes: 1(A1); 2(A2); 3(A3); 4(B and C). 80 percent of total data for each class was used for training, and remaining 20 percent was used for validation. And, to overcome small sample size, we applied five-fold cross validation to our dataset. In order to examine the competitiveness of the proposed model, we also experimented several comparative models including MDA, MLOGIT, CBR, ANN and MSVM. In case of MSVM, we adopted One-Against-One (OAO) and DAGSVM (Directed Acyclic Graph SVM) approaches because they are known to be the most accurate approaches among various MSVM approaches. GAMSVM was implemented using LIBSVM-an open-source software, and Evolver 5.5-a commercial software enables GA. Other comparative models were experimented using various statistical and AI packages such as SPSS for Windows, Neuroshell, and Microsoft Excel VBA (Visual Basic for Applications). Experimental results showed that the proposed model-GAMSVM-outperformed all the competitive models. In addition, the model was found to use less independent variables, but to show higher accuracy. In our experiments, five variables such as X7 (total debt), X9 (sales per employee), X13 (years after founded), X15 (accumulated earning to total asset), and X39 (the index related to the cash flows from operating activity) were found to be the most important factors in predicting the corporate credit ratings. However, the values of the finally selected kernel parameters were found to be almost same among the data subsets. To examine whether the predictive performance of GAMSVM was significantly greater than those of other models, we used the McNemar test. As a result, we found that GAMSVM was better than MDA, MLOGIT, CBR, and ANN at the 1% significance level, and better than OAO and DAGSVM at the 5% significance level.

• Journal of Intelligence and Information Systems
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• v.19 no.2
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• pp.73-85
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• 2013

Nowadays, in today's information society, the importance of the knowledge service using the information to creative value is getting higher day by day. In addition, depending on the development of IT technology, it is ease to collect and use information. Also, many companies actively use customer information to marketing in a variety of industries. Into the 21st century, companies have been actively using the culture arts to manage corporate image and marketing closely linked to their commercial interests. But, it is difficult that companies attract or maintain consumer's interest through their technology. For that reason, it is trend to perform cultural activities for tool of differentiation over many firms. Many firms used the customer's experience to new marketing strategy in order to effectively respond to competitive market. Accordingly, it is emerging rapidly that the necessity of personalized service to provide a new experience for people based on the personal profile information that contains the characteristics of the individual. Like this, personalized service using customer's individual profile information such as language, symbols, behavior, and emotions is very important today. Through this, we will be able to judge interaction between people and content and to maximize customer's experience and satisfaction. There are various relative works provide customer-centered service. Specially, emotion recognition research is emerging recently. Existing researches experienced emotion recognition using mostly bio-signal. Most of researches are voice and face studies that have great emotional changes. However, there are several difficulties to predict people's emotion caused by limitation of equipment and service environments. So, in this paper, we develop emotion prediction model based on vision-based interface to overcome existing limitations. Emotion recognition research based on people's gesture and posture has been processed by several researchers. This paper developed a model that recognizes people's emotional states through body gesture and posture using difference image method. And we found optimization validation model for four kinds of emotions' prediction. A proposed model purposed to automatically determine and predict 4 human emotions (Sadness, Surprise, Joy, and Disgust). To build up the model, event booth was installed in the KOCCA's lobby and we provided some proper stimulative movie to collect their body gesture and posture as the change of emotions. And then, we extracted body movements using difference image method. And we revised people data to build proposed model through neural network. The proposed model for emotion prediction used 3 type time-frame sets (20 frames, 30 frames, and 40 frames). And then, we adopted the model which has best performance compared with other models.' Before build three kinds of models, the entire 97 data set were divided into three data sets of learning, test, and validation set. The proposed model for emotion prediction was constructed using artificial neural network. In this paper, we used the back-propagation algorithm as a learning method, and set learning rate to 10%, momentum rate to 10%. The sigmoid function was used as the transform function. And we designed a three-layer perceptron neural network with one hidden layer and four output nodes. Based on the test data set, the learning for this research model was stopped when it reaches 50000 after reaching the minimum error in order to explore the point of learning. We finally processed each model's accuracy and found best model to predict each emotions. The result showed prediction accuracy 100% from sadness, and 96% from joy prediction in 20 frames set model. And 88% from surprise, and 98% from disgust in 30 frames set model. The findings of our research are expected to be useful to provide effective algorithm for personalized service in various industries such as advertisement, exhibition, performance, etc.

• Journal of Intelligence and Information Systems
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• v.19 no.2
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• pp.125-140
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• 2013

We call a data set in which the number of records belonging to a certain class far outnumbers the number of records belonging to the other class, 'imbalanced data set'. Most of the classification techniques perform poorly on imbalanced data sets. When we evaluate the performance of a certain classification technique, we need to measure not only 'accuracy' but also 'sensitivity' and 'specificity'. In a customer churn prediction problem, 'retention' records account for the majority class, and 'churn' records account for the minority class. Sensitivity measures the proportion of actual retentions which are correctly identified as such. Specificity measures the proportion of churns which are correctly identified as such. The poor performance of the classification techniques on imbalanced data sets is due to the low value of specificity. Many previous researches on imbalanced data sets employed 'oversampling' technique where members of the minority class are sampled more than those of the majority class in order to make a relatively balanced data set. When a classification model is constructed using this oversampled balanced data set, specificity can be improved but sensitivity will be decreased. In this research, we developed a hybrid model of support vector machine (SVM), artificial neural network (ANN) and decision tree, that improves specificity while maintaining sensitivity. We named this hybrid model 'hybrid SVM model.' The process of construction and prediction of our hybrid SVM model is as follows. By oversampling from the original imbalanced data set, a balanced data set is prepared. SVM_I model and ANN_I model are constructed using the imbalanced data set, and SVM_B model is constructed using the balanced data set. SVM_I model is superior in sensitivity and SVM_B model is superior in specificity. For a record on which both SVM_I model and SVM_B model make the same prediction, that prediction becomes the final solution. If they make different prediction, the final solution is determined by the discrimination rules obtained by ANN and decision tree. For a record on which SVM_I model and SVM_B model make different predictions, a decision tree model is constructed using ANN_I output value as input and actual retention or churn as target. We obtained the following two discrimination rules: 'IF ANN_I output value <0.285, THEN Final Solution = Retention' and 'IF ANN_I output value ${\geq}0.285$, THEN Final Solution = Churn.' The threshold 0.285 is the value optimized for the data used in this research. The result we present in this research is the structure or framework of our hybrid SVM model, not a specific threshold value such as 0.285. Therefore, the threshold value in the above discrimination rules can be changed to any value depending on the data. In order to evaluate the performance of our hybrid SVM model, we used the 'churn data set' in UCI Machine Learning Repository, that consists of 85% retention customers and 15% churn customers. Accuracy of the hybrid SVM model is 91.08% that is better than that of SVM_I model or SVM_B model. The points worth noticing here are its sensitivity, 95.02%, and specificity, 69.24%. The sensitivity of SVM_I model is 94.65%, and the specificity of SVM_B model is 67.00%. Therefore the hybrid SVM model developed in this research improves the specificity of SVM_B model while maintaining the sensitivity of SVM_I model.

• Journal of Intelligence and Information Systems
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• v.23 no.2
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• pp.107-122
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• 2017

Volatility in the stock market returns is a measure of investment risk. It plays a central role in portfolio optimization, asset pricing and risk management as well as most theoretical financial models. Engle(1982) presented a pioneering paper on the stock market volatility that explains the time-variant characteristics embedded in the stock market return volatility. His model, Autoregressive Conditional Heteroscedasticity (ARCH), was generalized by Bollerslev(1986) as GARCH models. Empirical studies have shown that GARCH models describes well the fat-tailed return distributions and volatility clustering phenomenon appearing in stock prices. The parameters of the GARCH models are generally estimated by the maximum likelihood estimation (MLE) based on the standard normal density. But, since 1987 Black Monday, the stock market prices have become very complex and shown a lot of noisy terms. Recent studies start to apply artificial intelligent approach in estimating the GARCH parameters as a substitute for the MLE. The paper presents SVR-based GARCH process and compares with MLE-based GARCH process to estimate the parameters of GARCH models which are known to well forecast stock market volatility. Kernel functions used in SVR estimation process are linear, polynomial and radial. We analyzed the suggested models with KOSPI 200 Index. This index is constituted by 200 blue chip stocks listed in the Korea Exchange. We sampled KOSPI 200 daily closing values from 2010 to 2015. Sample observations are 1487 days. We used 1187 days to train the suggested GARCH models and the remaining 300 days were used as testing data. First, symmetric and asymmetric GARCH models are estimated by MLE. We forecasted KOSPI 200 Index return volatility and the statistical metric MSE shows better results for the asymmetric GARCH models such as E-GARCH or GJR-GARCH. This is consistent with the documented non-normal return distribution characteristics with fat-tail and leptokurtosis. Compared with MLE estimation process, SVR-based GARCH models outperform the MLE methodology in KOSPI 200 Index return volatility forecasting. Polynomial kernel function shows exceptionally lower forecasting accuracy. We suggested Intelligent Volatility Trading System (IVTS) that utilizes the forecasted volatility results. IVTS entry rules are as follows. If forecasted tomorrow volatility will increase then buy volatility today. If forecasted tomorrow volatility will decrease then sell volatility today. If forecasted volatility direction does not change we hold the existing buy or sell positions. IVTS is assumed to buy and sell historical volatility values. This is somewhat unreal because we cannot trade historical volatility values themselves. But our simulation results are meaningful since the Korea Exchange introduced volatility futures contract that traders can trade since November 2014. The trading systems with SVR-based GARCH models show higher returns than MLE-based GARCH in the testing period. And trading profitable percentages of MLE-based GARCH IVTS models range from 47.5% to 50.0%, trading profitable percentages of SVR-based GARCH IVTS models range from 51.8% to 59.7%. MLE-based symmetric S-GARCH shows +150.2% return and SVR-based symmetric S-GARCH shows +526.4% return. MLE-based asymmetric E-GARCH shows -72% return and SVR-based asymmetric E-GARCH shows +245.6% return. MLE-based asymmetric GJR-GARCH shows -98.7% return and SVR-based asymmetric GJR-GARCH shows +126.3% return. Linear kernel function shows higher trading returns than radial kernel function. Best performance of SVR-based IVTS is +526.4% and that of MLE-based IVTS is +150.2%. SVR-based GARCH IVTS shows higher trading frequency. This study has some limitations. Our models are solely based on SVR. Other artificial intelligence models are needed to search for better performance. We do not consider costs incurred in the trading process including brokerage commissions and slippage costs. IVTS trading performance is unreal since we use historical volatility values as trading objects. The exact forecasting of stock market volatility is essential in the real trading as well as asset pricing models. Further studies on other machine learning-based GARCH models can give better information for the stock market investors.