{"title":"A Financial Time Series Denoiser Based on Diffusion Model","authors":"Zhuohan Wang, Carmine Ventre","doi":"arxiv-2409.02138","DOIUrl":null,"url":null,"abstract":"Financial time series often exhibit low signal-to-noise ratio, posing\nsignificant challenges for accurate data interpretation and prediction and\nultimately decision making. Generative models have gained attention as powerful\ntools for simulating and predicting intricate data patterns, with the diffusion\nmodel emerging as a particularly effective method. This paper introduces a\nnovel approach utilizing the diffusion model as a denoiser for financial time\nseries in order to improve data predictability and trading performance. By\nleveraging the forward and reverse processes of the conditional diffusion model\nto add and remove noise progressively, we reconstruct original data from noisy\ninputs. Our extensive experiments demonstrate that diffusion model-based\ndenoised time series significantly enhance the performance on downstream future\nreturn classification tasks. Moreover, trading signals derived from the\ndenoised data yield more profitable trades with fewer transactions, thereby\nminimizing transaction costs and increasing overall trading efficiency.\nFinally, we show that by using classifiers trained on denoised time series, we\ncan recognize the noising state of the market and obtain excess return.","PeriodicalId":501478,"journal":{"name":"arXiv - QuantFin - Trading and Market Microstructure","volume":"162 1","pages":""},"PeriodicalIF":0.0000,"publicationDate":"2024-09-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"arXiv - QuantFin - Trading and Market Microstructure","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/arxiv-2409.02138","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 0
Abstract
Financial time series often exhibit low signal-to-noise ratio, posing
significant challenges for accurate data interpretation and prediction and
ultimately decision making. Generative models have gained attention as powerful
tools for simulating and predicting intricate data patterns, with the diffusion
model emerging as a particularly effective method. This paper introduces a
novel approach utilizing the diffusion model as a denoiser for financial time
series in order to improve data predictability and trading performance. By
leveraging the forward and reverse processes of the conditional diffusion model
to add and remove noise progressively, we reconstruct original data from noisy
inputs. Our extensive experiments demonstrate that diffusion model-based
denoised time series significantly enhance the performance on downstream future
return classification tasks. Moreover, trading signals derived from the
denoised data yield more profitable trades with fewer transactions, thereby
minimizing transaction costs and increasing overall trading efficiency.
Finally, we show that by using classifiers trained on denoised time series, we
can recognize the noising state of the market and obtain excess return.