Application of the Hilbert-Huang Transform to Financial Data
Wednesday, 27 December 2006
A paper discusses the application of the Hilbert-Huang transform (HHT) method to time-series financial-market data. The method was described, variously without and with the HHT name, in several prior NASA Tech Briefs
articles and supporting documents. To recapitulate: The method is especially suitable for analyzing time-series data that represent nonstationary and nonlinear phenomena including physical phenomena and, in the present case, financial-market processes. The method involves the empirical mode decomposition (EMD), in which a complicated signal is decomposed into a finite number of functions, called “intrinsic mode functions” (IMFs), that admit well-behaved Hilbert transforms. The HHT consists of the combination of EMD and Hilbert spectral analysis. The local energies and the instantaneous frequencies derived from the IMFs through Hilbert transforms can be used to construct an energy-frequency-time distribution, denoted a Hilbert spectrum. The instant paper begins with a discussion of prior approaches to quantification of market volatility, summarizes the HHT method, then describes the application of the method in performing time-frequency analysis of mortgage-market data from the years 1972 through 2000. Filtering by use of the EMD is shown to be useful for quantifying market volatility.This work was done by Norden Huang of Goddard Space Flight Center. For further information, access the Technical Support Package (TSP) free on-line at www.techbriefs.com/tsp under the Information Sciences category.
This invention is owned by NASA, and a patent application has been filed. Inquiries concerning nonexclusive or exclusive license for its commercial development should be addressed to the Patent Counsel, Goddard Space Flight Center, (301) 286-7351. Refer to GSC-14807-1.
This Brief includes a Technical Support Package (TSP).
Application of the Hilbert-Huang Transform to Financial Data (reference GSC-14807-1) is currently available for download from the TSP library.
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