Mathematical Models For Decision Making And Forecasting On Euro- Yen In Foreign Exchange Market

Abdorrahman Haeri, Masoud Rabbani and Ali Habibnia
Journal of Iranian Economic Review, Article 4, Volume 16, Issue 30, Winter 2011, Page 67-91

In this paper, two approaches for trading and forecasting on Euro-Yen exchange rates are suggested. In the first approach, three decision-making models are developed to maximize the profit of trades during a specific period. Traders have three options to perform a trade at each market time that are: (a) Opening a buy trade, (b) Opening a sell trade and (c) Refusal of trading. These options are considered in the models by using related decision variables. Results of these models conform to qualitative contents in the literature of the foreign exchange market and present trading strategy on the basis of the indicators to maximize profit. The aim of the second approach is forecasting the direction of the exchange rate (increase or decrease) over a specific period on the basis of values of indicators in the previous time period. In this approach, two heuristic models are developed to minimize the mean of errors of forecasting. Then the mean of errors of developed models is compared with four major classification algorithms. Results show that the proposed model has higher accuracy in forecasting.

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