Anomaly Detection on Financial Time Series by Principal Component Analysis and Neural Networks

Stéphane Crépey (1, 2) , Lehdili Noureddine (3) , Nisrine Madhar (1, 2, 3) , Maud Thomas (1, 4)

1 LPSM (UMR_8001) - Laboratoire de Probabilités, Statistique et Modélisation
2 UPCité - Université Paris Cité
3 Natixis
4 SU - Sorbonne Université

A major concern when dealing with financial time series involving a wide variety of market risk factors is the presence of anomalies. These induce a miscalibration of the models used to quantify and manage risk, resulting in potential erroneous risk measures. We propose an approach that aims to improve anomaly detection in financial time series, overcoming most of the inherent difficulties. Valuable features are extracted from the time series by compressing and reconstructing the data through principal component analysis. We then define an anomaly score using a feedforward neural network. A time series is considered to be contaminated when its anomaly score exceeds a given cutoff value. This cutoff value is not a hand-set parameter but rather is calibrated as a neural network parameter throughout the minimization of a customized loss function. The efficiency of the proposed approach compared to several well-known anomaly detection algorithms is numerically demonstrated on both synthetic and real data sets, with high and stable performance being achieved with the PCA NN approach. We show that value-at-risk estimation errors are reduced when the proposed anomaly detection model is used with a basic imputation approach to correct the anomaly.

Mots clés: anomaly detection; financial time series; principal component analysis; neural network; density estimation; missing data; market risk; value at risk

Domaines: Statistiques [math.ST]; Finance quantitative [q-fin.CP]; Machine Learning [stat.ML]

Stéphane Crépey, Lehdili Noureddine, Nisrine Madhar, Maud Thomas. Anomaly Detection on Financial Time Series by Principal Component Analysis and Neural Networks. 2022. ⟨hal-03777995v3⟩