Improving stochastic models by smart denoising and latent representation optimization

This paper introduces an innovative deep learning-based optimization method specifically designed for data derived from stochastic processes. Addressing the prevalent issue of rapid overfitting in real-world scenarios with limited historical data, our approach focuses on denoising optimization. The method effectively balances the simultaneous optimization of latent data representation and target variables, leading to enhanced model performance. We rigorously test our approach using five diverse real-world datasets. Our study is structured into three parts: an ablation study to validate the individual components of our method, a statistical analysis using the Wilcoxon rank-sum test to confirm the superiority of our method against five research hypotheses, and a detailed exploration of parameter visualization and fine-tuning. The comprehensive evaluation demonstrates that our method not only outperforms existing techniques but also significantly contributes to the advancement of deep learning models for stochastic processes. The findings underscore the potential of our method as a robust solution to the challenges in modeling stochastic processes with deep learning, offering new avenues for efficient and accurate predictions. • This paper proposes a novel optimization method for modeling stochastic processes using deep learning that combines intelligent denoising with simultaneous optimization of latent data representation and target variables. • The proposed approach was evaluated on five real-world datasets, demonstrating superior performance compared to existing techniques. Particularly, outstanding results were achieved on a collection of over 2000 equities dated from the global financial crisis on.