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Efficient adaptive regression spline algorithms based on mapping approach with a case study on finance

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Abstract

Multivariate adaptive regression splines (MARS) has become a popular data mining (DM) tool due to its flexible model building strategy for high dimensional data. Compared to well-known others, it performs better in many areas such as finance, informatics, technology and science. Many studies have been conducted on improving its performance. For this purpose, an alternative backward stepwise algorithm is proposed through Conic-MARS (CMARS) method which uses a penalized residual sum of squares for MARS as a Tikhonov regularization problem. Additionally, by modifying the forward step of MARS via mapping approach, a time efficient procedure has been introduced by S-FMARS. Inspiring from the advantages of MARS, CMARS and S-FMARS, two hybrid methods are proposed in this study, aiming to produce time efficient DM tools without degrading their performances especially for large datasets. The resulting methods, called SMARS and SCMARS, are tested in terms of several performance criteria such as accuracy, complexity, stability and robustness via simulated and real life datasets. As a DM application, the hybrid methods are also applied to an important field of finance for predicting interest rates offered by a Turkish bank to its customers. The results show that the proposed hybrid methods, being the most time efficient with competing performances, can be considered as powerful choices particularly for large datasets.

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Acknowledgments

Authors would like to acknowledge one of the well-known Turkish banks for the financial data provision. They would like to thank CeydaYazıcı for the preparation of the financial data, and Dr. Seza Danışoğlu of METU, for her contributions to the financial application section.

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Authors and Affiliations

  1. Department of Statistics, Operations and Management Science, The University of Tennessee, Knoxville, TN, USA

    Elcin Kartal Koc

  2. Department of Industrial Engineering, Middle East Technical University, Ankara, Turkey

    Cem Iyigun

  3. Department of Statistics, Middle East Technical University, Ankara, Turkey

    İnci Batmaz

  4. Institute of Applied Mathematics, Middle East Technical University, Ankara, Turkey

    Gerhard-Wilhelm Weber

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  1. Elcin Kartal Koc
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  2. Cem Iyigun
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  3. İnci Batmaz
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  4. Gerhard-Wilhelm Weber
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Correspondence to Cem Iyigun.

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Koc, E.K., Iyigun, C., Batmaz, İ. et al. Efficient adaptive regression spline algorithms based on mapping approach with a case study on finance. J Glob Optim 60, 103–120 (2014). https://doi.org/10.1007/s10898-014-0211-1

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  • DOI: https://doi.org/10.1007/s10898-014-0211-1

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