pwc-archive/papers-with-abstracts huggingface dataset:
Generative model for financial time series trained with MMD using a signature kernel
Authors: Chung I Lu, Julian Sester
Date: 2024-07-29 00:00:00
Tasks: Management, Portfolio Optimization, Time Series

Generating synthetic financial time series data that accurately reflects real-world market dynamics holds tremendous potential for various applications, including portfolio optimization, risk management, and large scale machine learning. We present an approach for training generative models for financial time series using the maximum mean discrepancy (MMD) with a signature kernel. Our method leverages the expressive power of the signature transform to capture the complex dependencies and temporal structures inherent in financial data. We employ a moving average model to model the variance of the noise input, enhancing the model's ability to reproduce stylized facts such as volatility clustering. Through empirical experiments on S&P 500 index data, we demonstrate that our model effectively captures key characteristics of financial time series and outperforms a comparable GAN-based approach. In addition, we explore the application of the synthetic data generated to train a reinforcement learning agent for portfolio management, achieving promising results. Finally, we propose a method to add robustness to the generative model by tweaking the noise input so that the generated sequences can be adjusted to different market environments with minimal data.
Consumption-investment optimization with Epstein-Zin utility in unbounded non-Markovian markets
Authors: Zixin Feng, Dejian Tian, Harry Zheng
Date: 2024-07-29 00:00:00

The paper investigates the consumption-investment problem for an investor with Epstein-Zin utility in an incomplete market. A non-Markovian environment with unbounded parameters is considered, which is more realistic in practical financial scenarios compared to the Markovian setting. The optimal consumption and investment strategies are derived using the martingale optimal principle and quadratic backward stochastic differential equations (BSDEs) whose solutions admit some exponential moment. This integrability property plays a crucial role in establishing a key martingale argument. In addition, the paper also examines the associated dual problem and several models within the specified parameter framework.
Investment strategies based on forecasts are (almost) useless
Authors: Michael Weba
Date: 2024-08-03 00:00:00

Several studies on portfolio construction reveal that sensible strategies essentially yield the same results as their nonsensical inverted counterparts; moreover, random portfolios managed by Malkiel's dart-throwing monkey would outperform the cap-weighted benchmark index. Forecasting the future development of stock returns is an important aspect of portfolio assessment. Similar to the ostensible arbitrariness of portfolio selection methods, it is shown that there is no substantial difference between the performances of ``best'' and ``trivial'' forecasts - even under euphemistic model assumptions on the underlying price dynamics. A certain significance of a predictor is found only in the following special case: the best linear unbiased forecast is used, the planning horizon is small, and a critical relation is not satisfied.
On the optimal design of a new class of proportional portfolio insurance strategies in a jump-diffusion framework
Authors: Katia Colaneri, Daniele Mancinelli, Immacolata Oliva
Date: 2024-07-30 00:00:00
Tasks: valid

In this paper, we investigate an optimal investment problem associated with proportional portfolio insurance (PPI) strategies in the presence of jumps in the underlying dynamics. PPI strategies enable investors to mitigate downside risk while still retaining the potential for upside gains. This is achieved by maintaining an exposure to risky assets proportional to the difference between the portfolio value and the present value of the guaranteed amount. While PPI strategies are known to be free of downside risk in diffusion modeling frameworks with continuous trading, see e.g., Cont and Tankov (2009), real market applications exhibit a significant non-negligible risk, known as gap risk, which increases with the multiplier value. The goal of this paper is to determine the optimal PPI strategy in a setting where gap risk may occur, due to downward jumps in the asset price dynamics. We consider a loss-averse agent who aims at maximizing the expected utility of the terminal wealth exceeding a minimum guarantee. Technically, we model agent's preferences with an S-shaped utility functions to accommodate the possibility that gap risk occurs, and address the optimization problem via a generalization of the martingale approach that turns to be valid under market incompleteness in a jump-diffusion framework.
SABR/LIBOR market models: pricing and calibration for some interest rate derivatives
Authors: A. M. Ferreiro, J. A. García, J. G. López-Salas, C. Vázquez
Date: 2024-08-01 00:00:00

In order to overcome the drawbacks of assuming deterministic volatility coefficients in the standard LIBOR market models to capture volatility smiles and skews in real markets, several extensions of LIBOR models to incorporate stochastic volatilities have been proposed. The efficient calibration to market data of these more complex models becomes a relevant target in practice. The main objective of the present work is to efficiently calibrate some recent SABR/LIBOR market models to real market prices of caplets and swaptions. For the calibration we propose a parallelized version of the simulated annealing algorithm for multi-GPUs. The numerical results clearly illustrate the advantages of using the proposed multi-GPUs tools when applied to real market data and popular SABR/LIBOR models.
Risk sharing with Lambda value at risk under heterogeneous beliefs
Authors: Peng Liu, Andreas Tsanakas, Yunran Wei
Date: 2024-08-06 00:00:00

In this paper, we study the risk sharing problem among multiple agents using Lambda Value-at-Risk as their preference functional, under heterogeneous beliefs, where beliefs are represented by several probability measures. We obtain semi-explicit formulas for the inf-convolution of multiple Lambda Value-at-Risk measures under heterogeneous beliefs and the explicit forms of the corresponding optimal allocations. To show the impact of belief heterogeneity, we consider three cases: homogeneous beliefs, conditional beliefs and absolutely continuous beliefs. For those cases, we find more explicit expressions for the inf-convolution, showing the influence of the relation of the beliefs on the inf-convolution. Moreover, we consider, in a two-agent setting, the inf-convolution of one Lambda Value-at-Risk and a general risk measure, including expected utility, distortion risk measures and Lambda Value-at-Risk as special cases, with differing beliefs. The expression of the inf-convolution and the form of the optimal allocation are obtained. In all above cases we demonstrate that trivial outcomes arise when both belief inconsistency and risk tolerance are high. Finally, we discuss risk sharing for an alternative definition of Lambda Value-at-Risk.
An Integrated Approach to Importance Sampling and Machine Learning for Efficient Monte Carlo Estimation of Distortion Risk Measures in Black Box Models
Authors: Sören Bettels, Stefan Weber
Date: 2024-08-05 00:00:00
Tasks: Decision Making, Management

Distortion risk measures play a critical role in quantifying risks associated with uncertain outcomes. Accurately estimating these risk measures in the context of computationally expensive simulation models that lack analytical tractability is fundamental to effective risk management and decision making. In this paper, we propose an efficient important sampling method for distortion risk measures in such models that reduces the computational cost through machine learning. We demonstrate the applicability and efficiency of the Monte Carlo method in numerical experiments on various distortion risk measures and models.
Machine Learning-based Relative Valuation of Municipal Bonds
Authors: Preetha Saha, Jingrao Lyu, Dhruv Desai, Rishab Chauhan, Jerinsh Jeyapaulraj, Philip Sommer, Dhagash Mehta
Date: 2024-08-05 00:00:00

The trading ecosystem of the Municipal (muni) bond is complex and unique. With nearly 2\% of securities from over a million securities outstanding trading daily, determining the value or relative value of a bond among its peers is challenging. Traditionally, relative value calculation has been done using rule-based or heuristics-driven approaches, which may introduce human biases and often fail to account for complex relationships between the bond characteristics. We propose a data-driven model to develop a supervised similarity framework for the muni bond market based on CatBoost algorithm. This algorithm learns from a large-scale dataset to identify bonds that are similar to each other based on their risk profiles. This allows us to evaluate the price of a muni bond relative to a cohort of bonds with a similar risk profile. We propose and deploy a back-testing methodology to compare various benchmarks and the proposed methods and show that the similarity-based method outperforms both rule-based and heuristic-based methods.
Consistent time travel for realistic interactions with historical data: reinforcement learning for market making
Authors: Vincent Ragel, Damien Challet
Date: 2024-08-05 00:00:00
Tasks: Offline RL

Reinforcement learning works best when the impact of the agent's actions on its environment can be perfectly simulated or fully appraised from available data. Some systems are however both hard to simulate and very sensitive to small perturbations. An additional difficulty arises when a RL agent is trained offline to be part of a multi-agent system using only anonymous data, which makes it impossible to infer the state of each agent, thus to use data directly. Typical examples are competitive systems without agent-resolved data such as financial markets. We introduce consistent data time travel for offline RL as a remedy for these problems: instead of using historical data in a sequential way, we argue that one needs to perform time travel in historical data, i.e., to adjust the time index so that both the past state and the influence of the RL agent's action on the system coincide with real data. This both alleviates the need to resort to imperfect models and consistently accounts for both the immediate and long-term reactions of the system when using anonymous historical data. We apply this idea to market making in limit order books, a notoriously difficult task for RL; it turns out that the gain of the agent is significantly higher with data time travel than with naive sequential data, which suggests that the difficulty of this task for RL may have been overestimated.
Specific language impairment (SLI) detection pipeline from transcriptions of spontaneous narratives
Authors: Santiago Arena, Antonio Quintero-Rincón
Date: 2024-06-25 00:00:00
Tasks: Dimensionality Reduction

Specific Language Impairment (SLI) is a disorder that affects communication and can affect both comprehension and expression. This study focuses on effectively detecting SLI in children using transcripts of spontaneous narratives from 1063 interviews. A three-stage cascading pipeline was proposed f. In the first stage, feature extraction and dimensionality reduction of the data are performed using the Random Forest (RF) and Spearman correlation methods. In the second stage, the most predictive variables from the first stage are estimated using logistic regression, which is used in the last stage to detect SLI in children from transcripts of spontaneous narratives using a nearest neighbor classifier. The results revealed an accuracy of 97.13% in identifying SLI, highlighting aspects such as the length of the responses, the quality of their utterances, and the complexity of the language. This new approach, framed in natural language processing, offers significant benefits to the field of SLI detection by avoiding complex subjective variables and focusing on quantitative metrics directly related to the child's performance.
Combining Diverse Information for Coordinated Action: Stochastic Bandit Algorithms for Heterogeneous Agents
Authors: Lucia Gordon, Esther Rolf, Milind Tambe
Date: 2024-08-06 00:00:00
Tasks: Multi-Armed Bandits, Sensitivity

Stochastic multi-agent multi-armed bandits typically assume that the rewards from each arm follow a fixed distribution, regardless of which agent pulls the arm. However, in many real-world settings, rewards can depend on the sensitivity of each agent to their environment. In medical screening, disease detection rates can vary by test type; in preference matching, rewards can depend on user preferences; and in environmental sensing, observation quality can vary across sensors. Since past work does not specify how to allocate agents of heterogeneous but known sensitivity of these types in a stochastic bandit setting, we introduce a UCB-style algorithm, Min-Width, which aggregates information from diverse agents. In doing so, we address the joint challenges of (i) aggregating the rewards, which follow different distributions for each agent-arm pair, and (ii) coordinating the assignments of agents to arms. Min-Width facilitates efficient collaboration among heterogeneous agents, exploiting the known structure in the agents' reward functions to weight their rewards accordingly. We analyze the regret of Min-Width and conduct pseudo-synthetic and fully synthetic experiments to study the performance of different levels of information sharing. Our results confirm that the gains to modeling agent heterogeneity tend to be greater when the sensitivities are more varied across agents, while combining more information does not always improve performance.
NACL: A General and Effective KV Cache Eviction Framework for LLMs at Inference Time
Authors: Yilong Chen, Guoxia Wang, Junyuan Shang, Shiyao Cui, Zhenyu Zhang, Tingwen Liu, Shuohuan Wang, Yu Sun, dianhai yu, Hua Wu
Date: 2024-08-07 00:00:00

Large Language Models (LLMs) have ignited an innovative surge of AI applications, marking a new era of exciting possibilities equipped with extended context windows. However, hosting these models is cost-prohibitive mainly due to the extensive memory consumption of KV Cache involving long-context modeling. Despite several works proposing to evict unnecessary tokens from the KV Cache, most of them rely on the biased local statistics of accumulated attention scores and report performance using unconvincing metric like perplexity on inadequate short-text evaluation. In this paper, we propose NACL, a general framework for long-context KV cache eviction that achieves more optimal and efficient eviction in a single operation during the encoding phase. Due to NACL's efficiency, we combine more accurate attention score statistics in PROXY TOKENS EVICTION with the diversified random eviction strategy of RANDOM EVICTION, aiming to alleviate the issue of attention bias and enhance the robustness in maintaining pivotal tokens for long-context modeling tasks. Notably, our method significantly improves the performance on short- and long-text tasks by 80% and 76% respectively, reducing KV Cache by up to 50% with over 95% performance maintenance. The code is available at https://github.com/PaddlePaddle/Research/tree/master/NLP/ACL2024-NACL.
MaxMind: A Memory Loop Network to Enhance Software Productivity based on Large Language Models
Authors: Yuchen Dong, XiaoXiang Fang, Yuchen Hu, Renshuang Jiang, Zhe Jiang
Date: 2024-08-07 00:00:00
Tasks: Memorization, Philosophy, RAG

The application of large language models to facilitate automated software operations and tool generation (SOTG), thus augmenting software productivity, mirrors the early stages of human evolution when the ability to create and use tools accelerated the progress of civilization. These complex tasks require AI to continuously summarize and improve. Current research often overlooks the importance of converting real-time task experiences into system memory and differentiating the value of existing knowledge for future reference. This paper addresses these issues by evolving external memory models into Memory-Loop Networks for timely memorization and experience referencing. We also enhance a RAG mechanism with knowledge precision segmentation to utilize memory based on value differentiation, and design the MaxMind model for SOTG accordingly.To demonstrate our approach, we developed MaxMind4Sheet, an electronic spreadsheet processing system aligned with the MaxMind philosophy. Comparative experiments with SheetCopilot have demonstrated that the accumulation and recycling of task memories lead to a steady enhancement in task success rate, with an improvement rate of approximately 3%-6% per round in this implementation example. Note that as the memories continue to grow, this cumulative improvement may be substantial. The inclusion of memory recycling can also boost the system's task execution efficiency by up to 25%, and it can address the retraining issue faced by LLMs when handling specialized tasks through memories transfer.These suggest that MaxMind has significant potential to enhance the capabilities and productivity of LLM systems in SOTG.
SLIM-RAFT: A Novel Fine-Tuning Approach to Improve Cross-Linguistic Performance for Mercosur Common Nomenclature
Authors: Vinícius Di Oliveira, Yuri Façanha Bezerra, Li Weigang, Pedro Carvalho Brom, Victor Rafael R. Celestino
Date: 2024-08-07 00:00:00
Tasks: Retrieval

Natural language processing (NLP) has seen significant advancements with the advent of large language models (LLMs). However, substantial improvements are still needed for languages other than English, especially for specific domains like the applications of Mercosur Common Nomenclature (NCM), a Brazilian Harmonized System (HS). To address this gap, this study uses TeenyTineLLaMA, a foundational Portuguese LLM, as an LLM source to implement the NCM application processing. Additionally, a simplified Retrieval-Augmented Fine-Tuning (RAFT) technique, termed SLIM-RAFT, is proposed for task-specific fine-tuning of LLMs. This approach retains the chain-of-thought (CoT) methodology for prompt development in a more concise and streamlined manner, utilizing brief and focused documents for training. The proposed model demonstrates an efficient and cost-effective alternative for fine-tuning smaller LLMs, significantly outperforming TeenyTineLLaMA and ChatGPT-4 in the same task. Although the research focuses on NCM applications, the methodology can be easily adapted for HS applications worldwide.
CodexGraph: Bridging Large Language Models and Code Repositories via Code Graph Databases
Authors: Xiangyan Liu, Bo Lan, Zhiyuan Hu, Yang Liu, Zhicheng Zhang, Fei Wang, Michael Shieh, Wenmeng Zhou
Date: 2024-08-07 00:00:00
Tasks: HumanEval, mbpp, Retrieval

Large Language Models (LLMs) excel in stand-alone code tasks like HumanEval and MBPP, but struggle with handling entire code repositories. This challenge has prompted research on enhancing LLM-codebase interaction at a repository scale. Current solutions rely on similarity-based retrieval or manual tools and APIs, each with notable drawbacks. Similarity-based retrieval often has low recall in complex tasks, while manual tools and APIs are typically task-specific and require expert knowledge, reducing their generalizability across diverse code tasks and real-world applications. To mitigate these limitations, we introduce CodexGraph, a system that integrates LLM agents with graph database interfaces extracted from code repositories. By leveraging the structural properties of graph databases and the flexibility of the graph query language, CodexGraph enables the LLM agent to construct and execute queries, allowing for precise, code structure-aware context retrieval and code navigation. We assess CodexGraph using three benchmarks: CrossCodeEval, SWE-bench, and EvoCodeBench. Additionally, we develop five real-world coding applications. With a unified graph database schema, CodexGraph demonstrates competitive performance and potential in both academic and real-world environments, showcasing its versatility and efficacy in software engineering. Our application demo: https://github.com/modelscope/modelscope-agent/tree/master/apps/codexgraph_agent.
LaFA: Latent Feature Attacks on Non-negative Matrix Factorization
Authors: Minh Vu, Ben Nebgen, Erik Skau, Geigh Zollicoffer, Juan Castorena, Kim Rasmussen, Boian Alexandrov, Manish Bhattarai
Date: 2024-08-07 00:00:00

As Machine Learning (ML) applications rapidly grow, concerns about adversarial attacks compromising their reliability have gained significant attention. One unsupervised ML method known for its resilience to such attacks is Non-negative Matrix Factorization (NMF), an algorithm that decomposes input data into lower-dimensional latent features. However, the introduction of powerful computational tools such as Pytorch enables the computation of gradients of the latent features with respect to the original data, raising concerns about NMF's reliability. Interestingly, naively deriving the adversarial loss for NMF as in the case of ML would result in the reconstruction loss, which can be shown theoretically to be an ineffective attacking objective. In this work, we introduce a novel class of attacks in NMF termed Latent Feature Attacks (LaFA), which aim to manipulate the latent features produced by the NMF process. Our method utilizes the Feature Error (FE) loss directly on the latent features. By employing FE loss, we generate perturbations in the original data that significantly affect the extracted latent features, revealing vulnerabilities akin to those found in other ML techniques. To handle large peak-memory overhead from gradient back-propagation in FE attacks, we develop a method based on implicit differentiation which enables their scaling to larger datasets. We validate NMF vulnerabilities and FE attacks effectiveness through extensive experiments on synthetic and real-world data.
Decoding Biases: Automated Methods and LLM Judges for Gender Bias Detection in Language Models
Authors: Shachi H Kumar, Saurav Sahay, Sahisnu Mazumder, Eda Okur, Ramesh Manuvinakurike, Nicole Beckage, Hsuan Su, Hung-Yi Lee, Lama Nachman
Date: 2024-08-07 00:00:00
Tasks: Bias Detection, Gender Bias Detection, Response Generation

Large Language Models (LLMs) have excelled at language understanding and generating human-level text. However, even with supervised training and human alignment, these LLMs are susceptible to adversarial attacks where malicious users can prompt the model to generate undesirable text. LLMs also inherently encode potential biases that can cause various harmful effects during interactions. Bias evaluation metrics lack standards as well as consensus and existing methods often rely on human-generated templates and annotations which are expensive and labor intensive. In this work, we train models to automatically create adversarial prompts to elicit biased responses from target LLMs. We present LLM- based bias evaluation metrics and also analyze several existing automatic evaluation methods and metrics. We analyze the various nuances of model responses, identify the strengths and weaknesses of model families, and assess where evaluation methods fall short. We compare these metrics to human evaluation and validate that the LLM-as-a-Judge metric aligns with human judgement on bias in response generation.