Publication Library
Residual Switching Network for Portfolio Optimization
Description: This paper studies deep learning methodologies for portfolio optimization in the US equities market. We present a novel residual switching network that can automatically sense changes in market regimes and switch between momentum and reversal predictors accordingly. The residual switching network architecture combines two separate residual networks (ResNets), namely a switching module that learns stock market conditions, and the main module that learns momentum and reversal predictors. We demonstrate that over-fitting noisy financial data can be controlled with stacked residual blocks and further incorporating the attention mechanism can enhance powerful predictive properties. Over the period 2008 to H12017, the residual switching network (Switching-ResNet) strategy verified superior out-of-sample performance with an average annual Sharpe ratio of 2.22, compared with an average annual Sharpe ratio of 0.81 for the ANN-based strategy and 0.69 for the linear model.
Created At: 14 December 2024
Updated At: 14 December 2024
Application of Natural Language Processing in Financial Risk Detection
Description: This paper explores the application of Natural Language Processing (NLP) in financial risk detection. By constructing an NLP-based financial risk detection model, this study aims to identify and predict potential risks in financial documents and communications. First, the fundamental concepts of NLP and its theoretical foundation, including text mining methods, NLP model design principles, and machine learning algorithms, are introduced. Second, the process of text data preprocessing and feature extraction is described. Finally, the effectiveness and predictive performance of the model are validated through empirical research. The results show that the NLP-based financial risk detection model performs excellently in risk identification and prediction, providing effective risk management tools for financial institutions. This study offers valuable references for the field of financial risk management, utilizing advanced NLP techniques to improve the accuracy and efficiency of financial risk detection.
Created At: 14 December 2024
Updated At: 14 December 2024
Design and Optimization of Big Data and Machine Learning-Based Risk Monitoring System in Financial Markets
Description: With the increasing complexity of financial markets and rapid growth in data volume, traditional risk monitoring methods no longer suffice for modern financial institutions. This paper designs and optimizes a risk monitoring system based on big data and machine learning. By constructing a four-layer architecture, it effectively integrates largescale financial data and advanced machine learning algorithms. Key technologies employed in the system include Long Short-Term Memory (LSTM) networks, Random Forest, Gradient Boosting Trees, and real-time data processing platform Apache Flink, ensuring the real-time and accurate nature of risk monitoring. Research findings demonstrate that the system significantly enhances efficiency and accuracy in risk management, particularly excelling in identifying and warning against market crash risks.
Created At: 14 December 2024
Updated At: 14 December 2024
StockTime A Time Series Specialized Large Language Model Architecture for Stock Price Prediction
Description: The stock price prediction task holds a significant role in the financial domain and has been studied for a long time. Recently, large language models (LLMs) have brought new ways to improve these predictions. While recent financial large language models (FinLLMs) have shown considerable progress in financial NLP tasks compared to smaller pretrained language models (PLMs), challenges persist in stock price forecasting. Firstly, effectively integrating the modalities of time series data and natural language to fully leverage these capabilities remains complex. Secondly, FinLLMs focus more on analysis and interpretability, which can overlook the essential features of time series data. Moreover, due to the abundance of false and redundant information in financial markets, models often produce less accurate predictions when faced with such input data. In this paper, we introduce StockTime, a novel LLM-based architecture designed specifically for stock price data. Unlike recent FinLLMs, StockTime is specifically designed for stock price time series data. It leverages the natural ability of LLMs to predict the next token by treating stock prices as consecutive tokens, extracting textual information such as stock correlations, statistical trends and timestamps directly from these stock prices. StockTime then integrates both textual and time series data into the embedding space. By fusing this multimodal data, StockTime effectively predicts stock prices across arbitrary look-back periods. Ourexperiments demonstrate that StockTime outperforms recent LLMs, as it gives more accurate predictions while reducing memory usage and runtime costs.
Created At: 14 December 2024
Updated At: 14 December 2024
Evaluation of Human-Understandability of Global Model Explanations using Decision Tree
Description: In explainable artificial intelligence (XAI) research, the predominant focus has been on interpreting models for experts and practitioners. Model agnostic and local explanation approaches are deemed interpretable and sufficient in many applications. However, in domains like healthcare, where end users are patients without AI or domain expertise, there is an urgent need for model explanations that are more comprehensible and instil trust in the model’s operations. We hypothesise that generating model explanations that are narrative, patient-specific and global(holistic of the model) would enable better understandability and enable decision-making. We test this using a decision tree model to generate both local and global explanations for patients identified as having a high risk of coronary heart disease. These explanations are presented to non-expert users. We find a strong individual preference for a specific type of explanation. The majority of participants prefer global explanations, while a smaller group prefers local explanations. A task based evaluation of mental models of these participants provide valuable feedback to enhance narrative global explanations. This, in turn, guides the design of health informatics systems that are both trustworthy and actionable.
Created At: 14 December 2024
Updated At: 14 December 2024