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BDLOB: Bayesian Deep Convolutional Neural Networks for Limit Order Books

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  • Zihao Zhang
  • Stefan Zohren
  • Stephen Roberts

Abstract

We showcase how dropout variational inference can be applied to a large-scale deep learning model that predicts price movements from limit order books (LOBs), the canonical data source representing trading and pricing movements. We demonstrate that uncertainty information derived from posterior predictive distributions can be utilised for position sizing, avoiding unnecessary trades and improving profits. Further, we test our models by using millions of observations across several instruments and markets from the London Stock Exchange. Our results suggest that those Bayesian techniques not only deliver uncertainty information that can be used for trading but also improve predictive performance as stochastic regularisers. To the best of our knowledge, we are the first to apply Bayesian networks to LOBs.

Suggested Citation

  • Zihao Zhang & Stefan Zohren & Stephen Roberts, 2018. "BDLOB: Bayesian Deep Convolutional Neural Networks for Limit Order Books," Papers 1811.10041, arXiv.org.
    • Handle: RePEc:arx:papers:1811.10041
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    References listed on IDEAS

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    1. Justin Sirignano & Rama Cont, 2018. "Universal features of price formation in financial markets: perspectives from Deep Learning," Papers 1803.06917, arXiv.org.
    2. Justin Sirignano & Rama Cont, 2018. "Universal features of price formation in financial markets: perspectives from Deep Learning," Working Papers hal-01754054, HAL.
    3. Zihao Zhang & Stefan Zohren & Stephen Roberts, 2018. "DeepLOB: Deep Convolutional Neural Networks for Limit Order Books," Papers 1808.03668, arXiv.org, revised Jan 2020.
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    Citations

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    Cited by:

    1. Takuya Shintate & Lukáš Pichl, 2019. "Trend Prediction Classification for High Frequency Bitcoin Time Series with Deep Learning," JRFM, MDPI, vol. 12(1), pages 1-15, January.
    2. Meng‐Feng Yen & Yu‐Pei Huang & Liang‐Chih Yu & Yueh‐Ling Chen, 2022. "A Two-Dimensional Sentiment Analysis of Online Public Opinion and Future Financial Performance of Publicly Listed Companies," Computational Economics, Springer;Society for Computational Economics, vol. 59(4), pages 1677-1698, April.
    3. Yufei Wu & Mahmoud Mahfouz & Daniele Magazzeni & Manuela Veloso, 2021. "Towards Robust Representation of Limit Orders Books for Deep Learning Models," Papers 2110.05479, arXiv.org, revised Dec 2022.
    4. Zihao Zhang & Stefan Zohren & Stephen Roberts, 2019. "Deep Reinforcement Learning for Trading," Papers 1911.10107, arXiv.org.
    5. Gu, Yewen & Goez, Julio C. & Mario, Guajardo & Wallace, Stein W., 2019. "Autonomous vessels: State of the art and potential opportunities in logistics," Discussion Papers 2019/6, Norwegian School of Economics, Department of Business and Management Science.
    6. Antonio Briola & Jeremy Turiel & Riccardo Marcaccioli & Alvaro Cauderan & Tomaso Aste, 2021. "Deep Reinforcement Learning for Active High Frequency Trading," Papers 2101.07107, arXiv.org, revised Aug 2023.
    7. Zihao Zhang & Bryan Lim & Stefan Zohren, 2021. "Deep Learning for Market by Order Data," Papers 2102.08811, arXiv.org, revised Jul 2021.
    8. Antonio Briola & Jeremy Turiel & Tomaso Aste, 2020. "Deep Learning modeling of Limit Order Book: a comparative perspective," Papers 2007.07319, arXiv.org, revised Oct 2020.
    9. Eghbal Rahimikia & Stefan Zohren & Ser-Huang Poon, 2021. "Realised Volatility Forecasting: Machine Learning via Financial Word Embedding," Papers 2108.00480, arXiv.org, revised Nov 2024.
    10. Bryan Lim & Stefan Zohren & Stephen Roberts, 2019. "Enhancing Time Series Momentum Strategies Using Deep Neural Networks," Papers 1904.04912, arXiv.org, revised Sep 2020.
    11. Zhu, John Jianjun & Chang, Yung-Chun & Ku, Chih-Hao & Li, Stella Yiyan & Chen, Chi-Jen, 2021. "Online critical review classification in response strategy and service provider rating: Algorithms from heuristic processing, sentiment analysis to deep learning," Journal of Business Research, Elsevier, vol. 129(C), pages 860-877.
    12. Xiu Zhou & Xutao Wu & Pei Ding & Xiuguang Li & Ninghui He & Guozhi Zhang & Xiaoxing Zhang, 2019. "Research on Transformer Partial Discharge UHF Pattern Recognition Based on Cnn-lstm," Energies, MDPI, vol. 13(1), pages 1-13, December.
    13. Zihao Zhang & Stefan Zohren, 2021. "Multi-Horizon Forecasting for Limit Order Books: Novel Deep Learning Approaches and Hardware Acceleration using Intelligent Processing Units," Papers 2105.10430, arXiv.org, revised Aug 2021.

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