Predicting Energy Price Volatility Using Hybrid Artificial Neural Networks with GARCH-Type Models

Abstract

This paper aims at analyzing the energy price volatility forecasts for crude oil, ethanol, and natural gas. Several hybrid Artificial Neural Networks (ANN)-GARCH models consisting of ANN-GARCH, ANN-EGARCH, and ANN-GJR-GARCH models are introduced. However, a challenge in the ANN design is the selection of activation function. Thus, various forms of activation function, namely logistic, Gompertz, tanh, ReLU and leakyReLU are also considered to analyze the increase in the hybrid models’ predictive power. In our investigation, both in-sample and out-of-sample analysis are used and the results provide the strong evidence of the higher performance of the hybrid-ANN-GARCH compared to the single GARCH-type models. However, when five activation functions are applied over the parameters, the results tend to be similar, indicating the robustness of our forecasting results.