pwc-archive/papers-with-abstracts huggingface dataset:
Long Time Behavior of Optimal Liquidation Problems
Authors: Xinman Cheng, Guanxing Fu, Xiaonyu Xia
Date: 2024-05-23 00:00:00

In this paper, we study the long time behavior of an optimal liquidation problem with semimartingale strategies and external flows. To investigate the limit rigorously, we study the convergence of three BSDEs characterizing the value function and the optimal strategy, from finite horizon to infinite horizon. We find that in the long time limit the player may not necessarily liquidate her assets at all due to the existence of external flows, even if in any given finite time horizon, the player is forced to liquidate all assets. Moreover, when the intensity of the external flow is damped, the player will liquidate her assets in the long run.
Systematic Comparable Company Analysis and Computation of Cost of Equity using Clustering
Authors: Mohammed Perves
Date: 2024-04-25 00:00:00
Tasks: Clustering

Computing cost of equity for private corporations and performing comparable company analysis (comps) for both public and private corporations is an integral but tedious and time-consuming task, with important applications spanning the finance world, from valuations to internal planning. Performing comps traditionally often times include high ambiguity and subjectivity, leading to unreliability and inconsistency. In this paper, I will present a systematic and faster approach to compute cost of equity for private corporations and perform comps for both public and private corporations using spectral and agglomerative clustering. This leads to a reduction in the time required to perform comps by orders of magnitude and entire process being more consistent and reliable.
Unlocking Profit Potential: Maximizing Returns with Bayesian Optimization of Supertrend Indicator Parameters
Authors: Abdul Rahman
Date: 2024-05-23 00:00:00
Tasks: Bayesian Optimization

This paper investigates the potential of Bayesian optimization (BO) to optimize the atr multiplier and atr period -the parameters of the Supertrend indicator for maximizing trading profits across diverse stock datasets. By employing BO, the thesis aims to automate the identification of optimal parameter settings, leading to a more data-driven and potentially more profitable trading strategy compared to relying on manually chosen parameters. The effectiveness of the BO-optimized Supertrend strategy will be evaluated through backtesting on a variety of stock datasets.
Decision Trees for Intuitive Intraday Trading Strategies
Authors: Prajwal Naga, Dinesh Balivada, Sharath Chandra Nirmala, Poornoday Tiruveedi
Date: 2024-05-22 00:00:00

This research paper aims to investigate the efficacy of decision trees in constructing intraday trading strategies using existing technical indicators for individual equities in the NIFTY50 index. Unlike conventional methods that rely on a fixed set of rules based on combinations of technical indicators developed by a human trader through their analysis, the proposed approach leverages decision trees to create unique trading rules for each stock, potentially enhancing trading performance and saving time. By extensively backtesting the strategy for each stock, a trader can determine whether to employ the rules generated by the decision tree for that specific stock. While this method does not guarantee success for every stock, decision treebased strategies outperform the simple buy-and-hold strategy for many stocks. The results highlight the proficiency of decision trees as a valuable tool for enhancing intraday trading performance on a stock-by-stock basis and could be of interest to traders seeking to improve their trading strategies.
A K-means Algorithm for Financial Market Risk Forecasting
Authors: Jinxin Xu, Kaixian Xu, Yue Wang, Qinyan Shen, Ruisi Li
Date: 2024-05-21 00:00:00
Tasks: Prediction

Financial market risk forecasting involves applying mathematical models, historical data analysis and statistical methods to estimate the impact of future market movements on investments. This process is crucial for investors to develop strategies, financial institutions to manage assets and regulators to formulate policy. In today's society, there are problems of high error rate and low precision in financial market risk prediction, which greatly affect the accuracy of financial market risk prediction. K-means algorithm in machine learning is an effective risk prediction technique for financial market. This study uses K-means algorithm to develop a financial market risk prediction system, which significantly improves the accuracy and efficiency of financial market risk prediction. Ultimately, the outcomes of the experiments confirm that the K-means algorithm operates with user-friendly simplicity and achieves a 94.61% accuracy rate
A novel portfolio construction strategy based on the core-periphery profile of stocks
Authors: Imran Ansari, Charu Sharma, Akshay Agrawal, Niteesh Sahni
Date: 2024-04-27 00:00:00
Tasks: Portfolio Optimization

This paper highlights the significance of mesoscale structures, particularly the core-periphery structure, in financial networks for portfolio optimization. We build portfolios of stocks belonging to the periphery part of the Planar maximally filtered subgraphs of the underlying network of stocks created from Pearson correlations between pairs of stocks and compare its performance with some well-known strategies of Pozzi et. al. hinging around the local indices of centrality in terms of the Sharpe ratio, returns and standard deviation. Our findings reveal that these portfolios consistently outperform traditional strategies and further the core-periphery profile obtained is statistically significant across time periods. These empirical findings substantiate the efficacy of using the core-periphery profile of the stock market network for both inter-day and intraday trading and provide valuable insights for investors seeking better returns.
BERT vs GPT for financial engineering
Authors: Edward Sharkey, Philip Treleaven
Date: 2024-04-24 00:00:00
Tasks: Machine Translation, Question Answering, Text Generation, Text Summarization

The paper benchmarks several Transformer models [4], to show how these models can judge sentiment from a news event. This signal can then be used for downstream modelling and signal identification for commodity trading. We find that fine-tuned BERT models outperform fine-tuned or vanilla GPT models on this task. Transformer models have revolutionized the field of natural language processing (NLP) in recent years, achieving state-of-the-art results on various tasks such as machine translation, text summarization, question answering, and natural language generation. Among the most prominent transformer models are Bidirectional Encoder Representations from Transformers (BERT) and Generative Pre-trained Transformer (GPT), which differ in their architectures and objectives. A CopBERT model training data and process overview is provided. The CopBERT model outperforms similar domain specific BERT trained models such as FinBERT. The below confusion matrices show the performance on CopBERT & CopGPT respectively. We see a ~10 percent increase in f1_score when compare CopBERT vs GPT4 and 16 percent increase vs CopGPT. Whilst GPT4 is dominant It highlights the importance of considering alternatives to GPT models for financial engineering tasks, given risks of hallucinations, and challenges with interpretability. We unsurprisingly see the larger LLMs outperform the BERT models, with predictive power. In summary BERT is partially the new XGboost, what it lacks in predictive power it provides with higher levels of interpretability. Concluding that BERT models might not be the next XGboost [2], but represent an interesting alternative for financial engineering tasks, that require a blend of interpretability and accuracy.
Prediction of Cryptocurrency Prices through a Path Dependent Monte Carlo Simulation
Authors: Ayush Singh, Anshu K. Jha, Amit N. Kumar
Date: 2024-04-10 00:00:00

In this paper, our focus lies on the Merton's jump diffusion model, employing jump processes characterized by the compound Poisson process. Our primary objective is to forecast the drift and volatility of the model using a variety of methodologies. We adopt an approach that involves implementing different drift, volatility, and jump terms within the model through various machine learning techniques, traditional methods, and statistical methods on price-volume data. Additionally, we introduce a path-dependent Monte Carlo simulation to model cryptocurrency prices, taking into account the volatility and unexpected jumps in prices.
The puzzle of Carbon Allowance spread
Authors: Michele Azzone, Roberto Baviera, Pietro Manzoni
Date: 2024-02-07 00:00:00

A growing number of contributions in the literature have identified a puzzle in the European carbon allowance (EUA) market. Specifically, a persistent cost-of-carry spread (C-spread) over the risk-free rate has been observed. We are the first to explain the anomalous C-spread with the credit spread of the corporates involved in the emission trading scheme. We obtain statistical evidence that the C-spread is cointegrated with both this credit spread and the risk-free interest rate. This finding has a relevant policy implication: the most effective solution to solve the market anomaly is including the EUA in the list of European Central Bank eligible collateral for refinancing operations. This change in the ECB monetary policy operations would greatly benefit the carbon market and the EU green transition.
Score-CDM: Score-Weighted Convolutional Diffusion Model for Multivariate Time Series Imputation
Authors: S. Zhang, S. Wang, H. Miao, H. Chen, C. Fan, J. Zhang
Date: 2024-05-21 00:00:00
Tasks: Imputation, Multivariate Time Series Imputation, Time Series

Multivariant time series (MTS) data are usually incomplete in real scenarios, and imputing the incomplete MTS is practically important to facilitate various time series mining tasks. Recently, diffusion model-based MTS imputation methods have achieved promising results by utilizing CNN or attention mechanisms for temporal feature learning. However, it is hard to adaptively trade off the diverse effects of local and global temporal features by simply combining CNN and attention. To address this issue, we propose a Score-weighted Convolutional Diffusion Model (Score-CDM for short), whose backbone consists of a Score-weighted Convolution Module (SCM) and an Adaptive Reception Module (ARM). SCM adopts a score map to capture the global temporal features in the time domain, while ARM uses a Spectral2Time Window Block (S2TWB) to convolve the local time series data in the spectral domain. Benefiting from the time convolution properties of Fast Fourier Transformation, ARM can adaptively change the receptive field of the score map, and thus effectively balance the local and global temporal features. We conduct extensive evaluations on three real MTS datasets of different domains, and the result verifies the effectiveness of the proposed Score-CDM.
Exploring Dark Knowledge under Various Teacher Capacities and Addressing Capacity Mismatch
Authors: Xin-Chun Li, Wen-Shu Fan, Bowen Tao, Le Gan, De-Chuan Zhan
Date: 2024-05-21 00:00:00
Tasks: Knowledge Distillation

Knowledge Distillation (KD) could transfer the ``dark knowledge" of a well-performed yet large neural network to a weaker but lightweight one. From the view of output logits and softened probabilities, this paper goes deeper into the dark knowledge provided by teachers with different capacities. Two fundamental observations are: (1) a larger teacher tends to produce probability vectors that are less distinct between non-ground-truth classes; (2) teachers with different capacities are basically consistent in their cognition of relative class affinity. Abundant experimental studies verify these observations and in-depth empirical explanations are provided. The difference in dark knowledge leads to the peculiar phenomenon named ``capacity mismatch" that a more accurate teacher does not necessarily perform as well as a smaller teacher when teaching the same student network. Enlarging the distinctness between non-ground-truth class probabilities for larger teachers could address the capacity mismatch problem. This paper explores multiple simple yet effective ways to achieve this goal and verify their success by comparing them with popular KD methods that solve the capacity mismatch.
SEGAN: semi-supervised learning approach for missing data imputation
Authors: Xiaohua Pan, Weifeng Wu, Peiran Liu, Zhen Li, Peng Lu, Peijian Cao, Jianfeng Zhang, Xianfei Qiu, Yangyang Wu
Date: 2024-05-21 00:00:00
Tasks: Imputation

In many practical real-world applications, data missing is a very common phenomenon, making the development of data-driven artificial intelligence theory and technology increasingly difficult. Data completion is an important method for missing data preprocessing. Most existing miss-ing data completion models directly use the known information in the missing data set but ignore the impact of the data label information contained in the data set on the missing data completion model. To this end, this paper proposes a missing data completion model SEGAN based on semi-supervised learning, which mainly includes three important modules: generator, discriminator and classifier. In the SEGAN model, the classifier enables the generator to make more full use of known data and its label information when predicting missing data values. In addition, the SE-GAN model introduces a missing hint matrix to allow the discriminator to more effectively distinguish between known data and data filled by the generator. This paper theoretically proves that the SEGAN model that introduces a classifier and a missing hint matrix can learn the real known data distribution characteristics when reaching Nash equilibrium. Finally, a large number of experiments were conducted in this article, and the experimental results show that com-pared with the current state-of-the-art multivariate data completion method, the performance of the SEGAN model is improved by more than 3%.
Towards Principled, Practical Policy Gradient for Bandits and Tabular MDPs
Authors: Michael Lu, Matin Aghaei, Anant Raj, Sharan Vaswani
Date: 2024-05-21 00:00:00

We consider (stochastic) softmax policy gradient (PG) methods for bandits and tabular Markov decision processes (MDPs). While the PG objective is non-concave, recent research has used the objective's smoothness and gradient domination properties to achieve convergence to an optimal policy. However, these theoretical results require setting the algorithm parameters according to unknown problem-dependent quantities (e.g. the optimal action or the true reward vector in a bandit problem). To address this issue, we borrow ideas from the optimization literature to design practical, principled PG methods in both the exact and stochastic settings. In the exact setting, we employ an Armijo line-search to set the step-size for softmax PG and demonstrate a linear convergence rate. In the stochastic setting, we utilize exponentially decreasing step-sizes, and characterize the convergence rate of the resulting algorithm. We show that the proposed algorithm offers similar theoretical guarantees as the state-of-the art results, but does not require the knowledge of oracle-like quantities. For the multi-armed bandit setting, our techniques result in a theoretically-principled PG algorithm that does not require explicit exploration, the knowledge of the reward gap, the reward distributions, or the noise. Finally, we empirically compare the proposed methods to PG approaches that require oracle knowledge, and demonstrate competitive performance.
ReALLM: A general framework for LLM compression and fine-tuning
Authors: Louis Leconte, Lisa Bedin, Van Minh Nguyen, Eric Moulines
Date: 2024-05-21 00:00:00
Tasks: Decoder, Quantization, Text Generation

We introduce ReALLM, a novel approach for compression and memory-efficient adaptation of pre-trained language models that encompasses most of the post-training quantization and fine-tuning methods for a budget of <4 bits. Pre-trained matrices are decomposed into a high-precision low-rank component and a vector-quantized latent representation (using an autoencoder). During the fine-tuning step, only the low-rank components are updated. Our results show that pre-trained matrices exhibit different patterns. ReALLM adapts the shape of the encoder (small/large embedding, high/low bit VQ, etc.) to each matrix. ReALLM proposes to represent each matrix with a small embedding on $b$ bits and a neural decoder model $\mathcal{D}_\phi$ with its weights on $b_\phi$ bits. The decompression of a matrix requires only one embedding and a single forward pass with the decoder. Our weight-only quantization algorithm yields the best results on language generation tasks (C4 and WikiText-2) for a budget of $3$ bits without any training. With a budget of $2$ bits, ReALLM achieves state-of-the art performance after fine-tuning on a small calibration dataset.
Efficient and Interpretable Information Retrieval for Product Question Answering with Heterogeneous Data
Authors: Biplob Biswas, Rajiv Ramnath
Date: 2024-05-21 00:00:00
Tasks: Contrastive Learning, Information Retrieval, Question Answering, Retrieval

Expansion-enhanced sparse lexical representation improves information retrieval (IR) by minimizing vocabulary mismatch problems during lexical matching. In this paper, we explore the potential of jointly learning dense semantic representation and combining it with the lexical one for ranking candidate information. We present a hybrid information retrieval mechanism that maximizes lexical and semantic matching while minimizing their shortcomings. Our architecture consists of dual hybrid encoders that independently encode queries and information elements. Each encoder jointly learns a dense semantic representation and a sparse lexical representation augmented by a learnable term expansion of the corresponding text through contrastive learning. We demonstrate the efficacy of our model in single-stage ranking of a benchmark product question-answering dataset containing the typical heterogeneous information available on online product pages. Our evaluation demonstrates that our hybrid approach outperforms independently trained retrievers by 10.95% (sparse) and 2.7% (dense) in MRR@5 score. Moreover, our model offers better interpretability and performs comparably to state-of-the-art cross encoders while reducing response time by 30% (latency) and cutting computational load by approximately 38% (FLOPs).
A machine learning framework for interpretable predictions in patient pathways: The case of predicting ICU admission for patients with symptoms of sepsis
Authors: Sandra Zilker, Sven Weinzierl, Mathias Kraus, Patrick Zschech, Martin Matzner
Date: 2024-05-21 00:00:00
Proceeding: Health Care Management Science 2024 5
Tasks: ICU Admission

Proactive analysis of patient pathways helps healthcare providers anticipate treatment-related risks, identify outcomes, and allocate resources. Machine learning (ML) can leverage a patient's complete health history to make informed decisions about future events. However, previous work has mostly relied on so-called black-box models, which are unintelligible to humans, making it difficult for clinicians to apply such models. Our work introduces PatWay-Net, an ML framework designed for interpretable predictions of admission to the intensive care unit (ICU) for patients with symptoms of sepsis. We propose a novel type of recurrent neural network and combine it with multi-layer perceptrons to process the patient pathways and produce predictive yet interpretable results. We demonstrate its utility through a comprehensive dashboard that visualizes patient health trajectories, predictive outcomes, and associated risks. Our evaluation includes both predictive performance - where PatWay-Net outperforms standard models such as decision trees, random forests, and gradient-boosted decision trees - and clinical utility, validated through structured interviews with clinicians. By providing improved predictive accuracy along with interpretable and actionable insights, PatWay-Net serves as a valuable tool for healthcare decision support in the critical case of patients with symptoms of sepsis.
Pragmatic auditing: a pilot-driven approach for auditing Machine Learning systems
Authors: Djalel Benbouzid, Christiane Plociennik, Laura Lucaj, Mihai Maftei, Iris Merget, Aljoscha Burchardt, Marc P. Hauer, Abdeldjallil Naceri, Patrick van der Smagt
Date: 2024-05-21 00:00:00

The growing adoption and deployment of Machine Learning (ML) systems came with its share of ethical incidents and societal concerns. It also unveiled the necessity to properly audit these systems in light of ethical principles. For such a novel type of algorithmic auditing to become standard practice, two main prerequisites need to be available: A lifecycle model that is tailored towards transparency and accountability, and a principled risk assessment procedure that allows the proper scoping of the audit. Aiming to make a pragmatic step towards a wider adoption of ML auditing, we present a respective procedure that extends the AI-HLEG guidelines published by the European Commission. Our audit procedure is based on an ML lifecycle model that explicitly focuses on documentation, accountability, and quality assurance; and serves as a common ground for alignment between the auditors and the audited organisation. We describe two pilots conducted on real-world use cases from two different organisations and discuss the shortcomings of ML algorithmic auditing as well as future directions thereof.
Efficient Imitation Learning with Conservative World Models
Authors: Victor Kolev, Rafael Rafailov, Kyle Hatch, Jiajun Wu, Chelsea Finn
Date: 2024-05-21 00:00:00
Tasks: Imitation Learning, Offline RL

We tackle the problem of policy learning from expert demonstrations without a reward function. A central challenge in this space is that these policies fail upon deployment due to issues of distributional shift, environment stochasticity, or compounding errors. Adversarial imitation learning alleviates this issue but requires additional on-policy training samples for stability, which presents a challenge in realistic domains due to inefficient learning and high sample complexity. One approach to this issue is to learn a world model of the environment, and use synthetic data for policy training. While successful in prior works, we argue that this is sub-optimal due to additional distribution shifts between the learned model and the real environment. Instead, we re-frame imitation learning as a fine-tuning problem, rather than a pure reinforcement learning one. Drawing theoretical connections to offline RL and fine-tuning algorithms, we argue that standard online world model algorithms are not well suited to the imitation learning problem. We derive a principled conservative optimization bound and demonstrate empirically that it leads to improved performance on two very challenging manipulation environments from high-dimensional raw pixel observations. We set a new state-of-the-art performance on the Franka Kitchen environment from images, requiring only 10 demos on no reward labels, as well as solving a complex dexterity manipulation task.