Seminar series
Date
Thu, 10 Jun 2021
Time
16:00 - 17:00
Location
Virtual
Speaker
Blanka Horvath
Organisation
King's College London

Techniques that address sequential data have been a central theme in machine learning research in the past years. More recently, such considerations have entered the field of finance-related ML applications in several areas where we face inherently path dependent problems: from (deep) pricing and hedging (of path-dependent options) to generative modelling of synthetic market data, which we refer to as market generation.

We revisit Deep Hedging from the perspective of the role of the data streams used for training and highlight how this perspective motivates the use of highly-accurate generative models for synthetic data generation. From this, we draw conclusions regarding the implications for risk management and model governance of these applications, in contrast to risk management in classical quantitative finance approaches.

Indeed, financial ML applications and their risk management heavily rely on a solid means of measuring and efficiently computing (similarity-)metrics between datasets consisting of sample paths of stochastic processes. Stochastic processes are at their core random variables with values on path space. However, while the distance between two (finite dimensional) distributions was historically well understood, the extension of this notion to the level of stochastic processes remained a challenge until recently. We discuss the effect of different choices of such metrics while revisiting some topics that are central to ML-augmented quantitative finance applications (such as the synthetic generation and the evaluation of similarity of data streams) from a regulatory (and model governance) perspective. Finally, we discuss the effect of considering refined metrics which respect and preserve the information structure (the filtration) of the market and the implications and relevance of such metrics on financial results.

Further Information

Please contact us with feedback and comments about this page. Last updated on 03 Apr 2022 01:32.