For successful trading in financial markets, it is important to develop financial models where one can identify different states of the market for modifying one???s actions. In this paper, we propose to use probabilistic fuzzy systems for this purpose. We concentrate on Takagi???Sugeno (TS) probabilistic fuzzy systems that combine interpretability of fuzzy systems with the statistical properties of probabilistic systems. We start by recapitulating the general architecture of TS probabilistic fuzzy rule-based systems and summarize the corresponding reasoning schemes. We mention how probabilities can be estimated from a given data set and how a probability distribution can be approximated by a fuzzy histogram. We apply our methodology for financial time series analysis and demonstrate how a probabilistic TS fuzzy system can be identified, assuming that a linguistic term set is given. We illustrate the interpretability of such a system by inspecting the rule bases of our models.

data-driven design, fuzzy reasoning, fuzzy rule base, probabilistic fuzzy systems, time series analysis
Neural Networks and Related Topics (jel C45), Business Administration and Business Economics; Marketing; Accounting (jel M), Production Management (jel M11), Transportation Systems (jel R4)
hdl.handle.net/1765/323
ERIM Report Series Research in Management
Erasmus Research Institute of Management

van den Berg, J.H, van den Bergh, W.-M, & Kaymak, U. (2003). Financial Markets Analysis by Probabilistic Fuzzy Modelling (No. ERS-2003-036-LIS). ERIM Report Series Research in Management. Retrieved from http://hdl.handle.net/1765/323