pwc-archive/papers-with-abstracts huggingface dataset:
Sparse Grid Method for Highly Efficient Computation of Exposures for xVA
Authors: Lech A. Grzelak
Date: 2021-04-29 00:00:00
Tasks: Management

Every "x"-adjustment in the so-called xVA financial risk management framework relies on the computation of exposures. Considering thousands of Monte Carlo paths and tens of simulation steps, a financial portfolio needs to be evaluated numerous times during the lifetime of the underlying assets. This is the bottleneck of every simulation of xVA. In this article, we explore numerical techniques for improving the simulation of exposures. We aim to decimate the number of portfolio evaluations, particularly for large portfolios involving multiple, correlated risk factors. The usage of the Stochastic Collocation (SC) method, together with Smolyak's sparse grid extension, allows for a significant reduction in the number of portfolio evaluations, even when dealing with many risk factors. The proposed model can be easily applied to any portfolio and size. We report that for a realistic portfolio comprising linear and non-linear derivatives, the expected reduction in the portfolio evaluations may exceed 6000 times, depending on the dimensionality and the required accuracy. We give illustrative examples and examine the method with realistic multi-currency portfolios consisting of interest rate swaps and swaptions.
Wavelet analysis and energy-based measures for oil-food price relationship as a footprint of financialisation effect
Authors: Loretta Mastroeni, Alessandro Mazzoccoli, Greta Quaresima, Pierluigi Vellucci
Date: 2021-04-24 00:00:00
Tasks: Time Series, Time Series Analysis

In this paper we exploit the wavelet analysis approach to investigate oil-food price correlation and its determinants in the domains of time and frequency. Wavelet analysis is able to differentiate high frequency from low frequency movements which correspond, respectively, to short and long run dynamics. We show that the significant local correlation between food and oil is only apparent and this is mainly due both to the activity of commodity index investments and, to a lesser extent, to a growing demand from emerging economies. Moreover, the activity of commodity index investments gives evidence of the overall financialisation process. In addition, we employ wavelet entropy to assess the predictability of the time series under consideration at different frequencies. We find that some variables share a similar predictability structure with food and oil. These variables are the ones that move the most along with oil and food. We also introduce a novel measure, the Cross Wavelet Energy Entropy Measure (CWEEM), based on wavelet transformation and information entropy, with the aim of quantifying the intrinsic predictability of food and oil given demand from emerging economies, commodity index investments, financial stress, and global economic activity. The results show that these dynamics are best predicted by global economic activity at all frequencies and by demand from emerging economies and commodity index investments at high frequencies only.
Estimating Future VaR from Value Samples and Applications to Future Initial Margin
Authors: Narayan Ganesan, Bernhard Hientzsch
Date: 2021-04-23 00:00:00

Predicting future values at risk (fVaR) is an important problem in finance. They arise in the modelling of future initial margin requirements for counterparty credit risk and future market risk VaR. One is also interested in derived quantities such as: i) Dynamic Initial Margin (DIM) and Margin Value Adjustment (MVA) in the counterparty risk context; and ii) risk weighted assets (RWA) and Capital Value Adjustment (KVA) for market risk. This paper describes several methods that can be used to predict fVaRs. We begin with the Nested MC-empirical quantile method as benchmark, but it is too computationally intensive for routine use. We review several known methods and discuss their novel applications to the problem at hand. The techniques considered include computing percentiles from distributions (Normal and Johnson) that were matched to parametric moments or percentile estimates, quantile regressions methods, and others with more specific assumptions or requirements. We also consider how limited inner simulations can be used to improve the performance of these techniques. The paper also provides illustrations, results, and visualizations of intermediate and final results for the various approaches and methods.
An Empirical Assessment of Characteristics and Optimal Portfolios
Authors: Christopher G. Lamoureux, Huacheng Zhang
Date: 2021-04-27 00:00:00

We analyze characteristics' joint predictive information through the lens of out-of-sample power utility functions. Linking weights to characteristics to form optimal portfolios suffers from estimation error which we mitigate by maximizing an in-sample loss function that is more concave than the utility function. While no single characteristic can be used to enhance utility by all investors, conditioning on momentum, size, and residual volatility produces portfolios with significantly higher certainty equivalents than benchmarks for all investors. Characteristic complementarities produce the benefits, for example momentum mitigates overfitting inherent in other characteristics. Optimal portfolios' returns lie largely outside the span of traditional factors.
Optimal bidding in hourly and quarter-hourly electricity price auctions: trading large volumes of power with market impact and transaction costs
Authors: Michał Narajewski, Florian Ziel
Date: 2021-04-29 00:00:00

This paper addresses the question of how much to bid to maximize the profit when trading in two electricity markets: the hourly Day-Ahead Auction and the quarter-hourly Intraday Auction. For optimal coordinated bidding many price scenarios are examined, the own non-linear market impact is estimated by considering empirical supply and demand curves, and a number of trading strategies is used. Additionally, we provide theoretical results for risk neutral agents. The application study is conducted using the German market data, but the presented methods can be easily utilized with other two consecutive auctions. This paper contributes to the existing literature by evaluating the costs of electricity trading, i.e. the price impact and the transaction costs. The empirical results for the German EPEX market show that it is far more profitable to minimize the price impact rather than maximize the arbitrage.
FX Market Volatility
Authors: Anton Koshelev
Date: 2021-04-29 00:00:00

This paper aims at solving FX market volatility modeling problem and finding the most becoming approach to this task. Validity of two competing approaches, classical econometric generalized conditional heteroscedasticity and mathematical (singular spectrum analysis and dynamical systems stability analysis) are tested on major currency pairs (EUR/USD, USD/JPY, GBP/USD) and unique high-frequency USD/RUB data. The study shows that both mathematical tools, understudied in econometric discourse, have a great potential in scope of discussed problematic, as for all experiments covered in this research, both of them show promising results.
Constructing long-short stock portfolio with a new listwise learn-to-rank algorithm
Authors: Xin Zhang, Lan Wu, Zhixue Chen
Date: 2021-04-26 00:00:00
Tasks: Binary Classification

Factor strategies have gained growing popularity in industry with the fast development of machine learning. Usually, multi-factors are fed to an algorithm for some cross-sectional return predictions, which are further used to construct a long-short portfolio. Instead of predicting the value of the stock return, emerging studies predict a ranked stock list using the mature learn-to-rank technology. In this study, we propose a new listwise learn-to-rank loss function which aims to emphasize both the top and the bottom of a rank list. Our loss function, motivated by the long-short strategy, is endogenously shift-invariant and can be viewed as a direct generalization of ListMLE. Under different transformation functions, our loss can lead to consistency with binary classification loss or permutation level 0-1 loss. A probabilistic explanation for our model is also given as a generalized Plackett-Luce model. Based on a dataset of 68 factors in China A-share market from 2006 to 2019, our empirical study has demonstrated the strength of our method which achieves an out-of-sample annual return of 38% with the Sharpe ratio being 2.
Nonparametric Test for Volatility in Clustered Multiple Time Series
Authors: Erniel B. Barrios, Paolo Victor T. Redondo
Date: 2021-04-28 00:00:00
Tasks: Clustering, Time Series, Time Series Analysis

Contagion arising from clustering of multiple time series like those in the stock market indicators can further complicate the nature of volatility, rendering a parametric test (relying on asymptotic distribution) to suffer from issues on size and power. We propose a test on volatility based on the bootstrap method for multiple time series, intended to account for possible presence of contagion effect. While the test is fairly robust to distributional assumptions, it depends on the nature of volatility. The test is correctly sized even in cases where the time series are almost nonstationary. The test is also powerful specially when the time series are stationary in mean and that volatility are contained only in fewer clusters. We illustrate the method in global stock prices data.
Modelling Net Loan Loss with Bayesian and Frequentist Regression Analysis
Authors: Nathan Thomas Provost
Date: 2021-04-18 00:00:00
Tasks: regression

We create two distinct nonlinear regression models relating net loan loss (as an outcome) to several other financial and sociological quantities. We consider these data for the time interval between April 1st 2011 and April 1st 2020. We also include temporal quantities (month and year) in our model to improve accuracy. One model follows the frequentist paradigm for nonlinear regression, while the other follows the Bayesian paradigm. By using the two methods, we obtain a rounded understanding of the relationship between net loan losses and our given financial, sociological, and temporal variables, improving our ability to make financial predictions regarding the profitability of loan allocation.
On the Generation of Self-similar with Long-range Dependent Traffic Using Piecewise Affine Chaotic One-dimensional Maps (Extended Version)
Authors: Ginno Millán
Date: 2021-04-30 00:00:00
Tasks: valid

A qualitative and quantitative extension of the chaotic models used to generate self-similar traffic with long-range dependence (LRD) is presented by means of the formulation of a model that considers the use of piecewise affine one-dimensional maps. Based on the disaggregation of the temporal series generated, a valid explanation of the behavior of the values of Hurst exponent is proposed and the feasibility of their control from the parameters of the proposed model is shown.
Hyperspectral Unmixing Using a Neural Network Autoencoder
Authors: Burkni Palsson, Jakob Sigurdsson, Johannes R. Sveinsson, Magnus O. Ulfarsson
Date: 2018-03-22 00:00:00
Tasks: Hyperspectral Unmixing

In this paper, we present a deep learning based method for blind hyperspectral unmixing in the form of a neural network autoencoder. We show that the linear mixture model implicitly puts certain architectural constraints on the network, and it effectively performs blind hyperspectral unmixing. Several different architectural configurations of both shallow and deep encoders are evaluated. Also, deep encoders are tested using different activation functions. Furthermore, we investigate the performance of the method using three different objective functions. The proposed method is compared to other benchmark methods using real data and previously established ground truths of several common data sets. Experiments show that the proposed method compares favorably to other commonly used hyperspectral unmixing methods and exhibits robustness to noise. This is especially true when using spectral angle distance as the network's objective function. Finally, results indicate that a deeper and a more sophisticated encoder does not necessarily give better results.
Ensemble Learning for Spectral Clustering
Authors: Hongmin Li, Xiucai Ye, Akira Imakura, Tetsuya Sakurai
Date: 2020-11-20 00:00:00
Tasks: Clustering, Ensemble Learning, Image/Document Clustering

Ensemble clustering has attracted much attention in machine learning and data mining for the high performance in the task of clustering. Spectral clustering is one of the most popular clustering methods and has superior performance compared with the traditional clustering methods. Existing ensemble clustering methods usually directly use the clustering results of the base clustering algorithms for ensemble learning, which cannot make good use of the intrinsic data structures explored by the graph Laplacians in spectral clustering, thus cannot obtain the desired clustering result. In this paper, we propose a new ensemble learning method for spectral clustering-based clustering algorithms. Instead of directly using the clustering results obtained from each base spectral clustering algorithm, the proposed method learns a robust presentation of graph Laplacian by ensemble learning from the spectral embedding of each base spectral clustering algorithm. Finally, the proposed method applies k-means on the spectral embedding obtain from the learned graph Laplacian to get clusters. Experimental results on both synthetic and real-world datasets show that the proposed method outperforms other existing ensemble clustering methods.
ModelGuard: Runtime Validation of Lipschitz-continuous Models
Authors: Taylor J. Carpenter, Radoslav Ivanov, Insup Lee, James Weimer
Date: 2021-04-30 00:00:00

This paper presents ModelGuard, a sampling-based approach to runtime model validation for Lipschitz-continuous models. Although techniques exist for the validation of many classes of models the majority of these methods cannot be applied to the whole of Lipschitz-continuous models, which includes neural network models. Additionally, existing techniques generally consider only white-box models. By taking a sampling-based approach, we can address black-box models, represented only by an input-output relationship and a Lipschitz constant. We show that by randomly sampling from a parameter space and evaluating the model, it is possible to guarantee the correctness of traces labeled consistent and provide a confidence on the correctness of traces labeled inconsistent. We evaluate the applicability and scalability of ModelGuard in three case studies, including a physical platform.
Divide-and-conquer based Large-Scale Spectral Clustering
Authors: Hongmin Li, Xiucai Ye, Akira Imakura, Tetsuya Sakurai
Date: 2021-04-30 00:00:00
Tasks: Clustering, Image/Document Clustering

Spectral clustering is one of the most popular clustering methods. However, how to balance the efficiency and effectiveness of the large-scale spectral clustering with limited computing resources has not been properly solved for a long time. In this paper, we propose a divide-and-conquer based large-scale spectral clustering method to strike a good balance between efficiency and effectiveness. In the proposed method, a divide-and-conquer based landmark selection algorithm and a novel approximate similarity matrix approach are designed to construct a sparse similarity matrix within low computational complexities. Then clustering results can be computed quickly through a bipartite graph partition process. The proposed method achieves a lower computational complexity than most existing large-scale spectral clustering methods. Experimental results on ten large-scale datasets have demonstrated the efficiency and effectiveness of the proposed method. The MATLAB code of the proposed method and experimental datasets are available at https://github.com/Li-Hongmin/MyPaperWithCode.
Explanation-Based Human Debugging of NLP Models: A Survey
Authors: Piyawat Lertvittayakumjorn, Francesca Toni
Date: 2021-04-30 00:00:00
Tasks: Survey

Debugging a machine learning model is hard since the bug usually involves the training data and the learning process. This becomes even harder for an opaque deep learning model if we have no clue about how the model actually works. In this survey, we review papers that exploit explanations to enable humans to give feedback and debug NLP models. We call this problem explanation-based human debugging (EBHD). In particular, we categorize and discuss existing work along three dimensions of EBHD (the bug context, the workflow, and the experimental setting), compile findings on how EBHD components affect the feedback providers, and highlight open problems that could be future research directions.
Stealthy Backdoors as Compression Artifacts
Authors: Yulong Tian, Fnu Suya, Fengyuan Xu, David Evans
Date: 2021-04-30 00:00:00
Tasks: Backdoor Attack, Model Compression, Quantization

In a backdoor attack on a machine learning model, an adversary produces a model that performs well on normal inputs but outputs targeted misclassifications on inputs containing a small trigger pattern. Model compression is a widely-used approach for reducing the size of deep learning models without much accuracy loss, enabling resource-hungry models to be compressed for use on resource-constrained devices. In this paper, we study the risk that model compression could provide an opportunity for adversaries to inject stealthy backdoors. We design stealthy backdoor attacks such that the full-sized model released by adversaries appears to be free from backdoors (even when tested using state-of-the-art techniques), but when the model is compressed it exhibits highly effective backdoors. We show this can be done for two common model compression techniques -- model pruning and model quantization. Our findings demonstrate how an adversary may be able to hide a backdoor as a compression artifact, and show the importance of performing security tests on the models that will actually be deployed not their precompressed version.
Learning Linear Temporal Properties from Noisy Data: A MaxSAT Approach
Authors: Jean-Raphaël Gaglione, Daniel Neider, Rajarshi Roy, Ufuk Topcu, Zhe Xu
Date: 2021-04-30 00:00:00

We address the problem of inferring descriptions of system behavior using Linear Temporal Logic (LTL) from a finite set of positive and negative examples. Most of the existing approaches for solving such a task rely on predefined templates for guiding the structure of the inferred formula. The approaches that can infer arbitrary LTL formulas, on the other hand, are not robust to noise in the data. To alleviate such limitations, we devise two algorithms for inferring concise LTL formulas even in the presence of noise. Our first algorithm infers minimal LTL formulas by reducing the inference problem to a problem in maximum satisfiability and then using off-the-shelf MaxSAT solvers to find a solution. To the best of our knowledge, we are the first to incorporate the usage of MaxSAT solvers for inferring formulas in LTL. Our second learning algorithm relies on the first algorithm to derive a decision tree over LTL formulas based on a decision tree learning algorithm. We have implemented both our algorithms and verified that our algorithms are efficient in extracting concise LTL descriptions even in the presence of noise.
Participatory Budgeting with Donations and Diversity Constraints
Authors: Jiehua Chen, Martin Lackner, Jan Maly
Date: 2021-04-30 00:00:00
Tasks: Diversity

Participatory budgeting (PB) is a democratic process where citizens jointly decide on how to allocate public funds to indivisible projects. This paper focuses on PB processes where citizens may give additional money to projects they want to see funded. We introduce a formal framework for this kind of PB with donations. Our framework also allows for diversity constraints, meaning that each project belongs to one or more types, and there are lower and upper bounds on the number of projects of the same type that can be funded. We propose three general classes of methods for aggregating the citizens' preferences in the presence of donations and analyze their axiomatic properties. Furthermore, we investigate the computational complexity of determining the outcome of a PB process with donations and of finding a citizen's optimal donation strategy.
Black-box Gradient Attack on Graph Neural Networks: Deeper Insights in Graph-based Attack and Defense
Authors: Haoxi Zhan, Xiaobing Pei
Date: 2021-04-30 00:00:00
Tasks: Graph Representation Learning, Representation Learning

Graph Neural Networks (GNNs) have received significant attention due to their state-of-the-art performance on various graph representation learning tasks. However, recent studies reveal that GNNs are vulnerable to adversarial attacks, i.e. an attacker is able to fool the GNNs by perturbing the graph structure or node features deliberately. While being able to successfully decrease the performance of GNNs, most existing attacking algorithms require access to either the model parameters or the training data, which is not practical in the real world. In this paper, we develop deeper insights into the Mettack algorithm, which is a representative grey-box attacking method, and then we propose a gradient-based black-box attacking algorithm. Firstly, we show that the Mettack algorithm will perturb the edges unevenly, thus the attack will be highly dependent on a specific training set. As a result, a simple yet useful strategy to defense against Mettack is to train the GNN with the validation set. Secondly, to overcome the drawbacks, we propose the Black-Box Gradient Attack (BBGA) algorithm. Extensive experiments demonstrate that out proposed method is able to achieve stable attack performance without accessing the training sets of the GNNs. Further results shows that our proposed method is also applicable when attacking against various defense methods.
Updatable Siamese Tracker with Two-stage One-shot Learning
Authors: Xinglong Sun, Guangliang Han, Lihong Guo, Tingfa Xu, Jianan Li, Peixun Liu
Date: 2021-04-30 00:00:00
Tasks: Object, One-Shot Learning, Vocal Bursts Valence Prediction

Offline Siamese networks have achieved very promising tracking performance, especially in accuracy and efficiency. However, they often fail to track an object in complex scenes due to the incapacity in online update. Traditional updaters are difficult to process the irregular variations and sampling noises of objects, so it is quite risky to adopt them to update Siamese networks. In this paper, we first present a two-stage one-shot learner, which can predict the local parameters of primary classifier with object samples from diverse stages. Then, an updatable Siamese network is proposed based on the learner (SiamTOL), which is able to complement online update by itself. Concretely, we introduce an extra inputting branch to sequentially capture the latest object features, and design a residual module to update the initial exemplar using these features. Besides, an effective multi-aspect training loss is designed for our network to avoid overfit. Extensive experimental results on several popular benchmarks including OTB100, VOT2018, VOT2019, LaSOT, UAV123 and GOT10k manifest that the proposed tracker achieves the leading performance and outperforms other state-of-the-art methods