Hidden Markov Models predict foreign exchange rate

Abstract

This paper presents the prediction Thai baht by using Hidden Markov Models (HMM) with which the prediction model uses four factors, dollar index, interest rate, inflation rate and economic growth. The main idea of this work is a technique of encoding four factors into one observation sequence to train HMM. One result of prediction data will present four factors after decoding. The experiment is done using the data-by-day from 2002 to 2013 and showed that the technique has the mean percentage error of 0.167% to predict Thai currency exchange.