arXiv subjects

Marc Schmitt

Publications and source records attributed to Marc Schmitt.

14 recordsLinked to original sources

arXiv2026

Algometrics: Forecasting Under Algorithmic Feedback

In algorithmic markets, predictive models become part of the data-generating process they aim to forecast. Once their outputs are converted into trades, allocations, execution schedules, or risk controls, they change the future data on which they are evaluated. I introduce algometrics, a framework for time series whose evolution depends on the predictive algorithms forecasting them. The framework distinguishes historical risk, measured under passive forecasting, from deployment risk, measured when forecasts drive actions. I prove three results. First, deployment risk is not identifiable from passive historical data alone: even in a one-step linear feedback model, infinitely many algorithm-mediated environments induce the same historical law while implying different deployment risks for the same forecaster. Second, historical model rankings can invert under crowding, so a predictor with lower passive error can have higher deployment error once similar algorithms are adopted. Third, randomized or instrumented actions identify short-horizon linear feedback, and I derive a finite-sample bound for deployment-risk estimation. These results suggest that time-series benchmarks in algorithmic markets should report feedback sensitivity alongside predictive accuracy.

cs.LG↗

arXiv2026

Digital Ecosystems: Enabling Collaboration in a Fragmented World

As geopolitical, organizational, and technological fragmentation deepens, resilient digital collaboration becomes imperative. This paper develops a spectrum framework of polycentric digital ecosystems-nested socio-technical systems spanning personal, organizational, inter-organizational, and global layers. Integration across these layers is enabled by four technology clusters: AI and automation, blockchain trust, federated data spaces, and immersive technologies. By redefining digital ecosystems as distributed, adaptive networks of loosely coupled actors, this study outlines new pathways for crossborder coordination and innovation. The framework extends platform theory by introducing a multi-layer conceptualization of polycentric digital ecosystems and demonstrates how AI-enabled infrastructures can be orchestrated to achieve digital integration in a fragmented, multipolar world.

cs.CY↗

arXiv2026

Algorithmic Monitoring: Measuring Market Stress with Machine Learning

I construct a Market Stress Probability Index (MSPI) that estimates the probability of high stress in the U.S. equity market one month ahead using information from the cross-section of individual stocks. Using CRSP daily data, each month is summarized by a set of interpretable cross-sectional fragility signals and mapped into a forward-looking stress probability via an L1-regularized logistic regression in a real-time expanding-window design. Out of sample, MSPI tracks major stress episodes and improves discrimination and accuracy relative to a parsimonious benchmark based on lagged market return and realized volatility, delivering calibrated stress probabilities on an economically meaningful scale. Further, I illustrate how MSPI can be used as a probability-based measurement object in financial econometrics. The resulting index provides a transparent and easily updated measure of near-term equity-market stress risk.

q-fin.RM↗

arXiv2026

Taming Tail Risk in Financial Markets: Conformal Calibration for Nonstationary Portfolio VaR

Value-at-risk (VaR) forecasts drive trading constraints and capital allocation, yet realized exceedance rates concentrate in stress periods, when losses are largest. This paper studies sequential one-sided VaR calibration via conformal prediction. It proposes regime-weighted conformal calibration (RWC), which builds a safety buffer from past forecast errors using exponential time decay and regime-similarity weights. RWC is model-agnostic and wraps any conditional quantile forecaster to target a desired exceedance rate, with time-weighted calibration (TWC) as a special case. Coverage bounds are derived for arbitrary data-driven weights under smooth regime drift, without assuming weighted exchangeability. On the CRSP index and sixteen U.S. equity portfolios, RWC and TWC are benchmarked against modern online conformal methods at the Basel-relevant 99% and 97.5% levels. TWC is a strong default under drift, while regime weighting improves stress-period calibration for slowly adapting forecasters, and diagnostics indicate when localization is reliable.

q-fin.RM↗

arXiv2025

Cyber Shadows: Neutralizing Security Threats with AI and Targeted Policy Measures

The digital age, driven by the AI revolution, brings significant opportunities but also conceals security threats, which we refer to as cyber shadows. These threats pose risks at individual, organizational, and societal levels. This paper examines the systemic impact of these cyber threats and proposes a comprehensive cybersecurity strategy that integrates AI-driven solutions, such as Intrusion Detection Systems (IDS), with targeted policy interventions. By combining technological and regulatory measures, we create a multilevel defense capable of addressing both direct threats and indirect negative externalities. We emphasize that the synergy between AI-driven solutions and policy interventions is essential for neutralizing cyber threats and mitigating their negative impact on the digital economy. Finally, we underscore the need for continuous adaptation of these strategies, especially in response to the rapid advancement of autonomous AI-driven attacks, to ensure the creation of secure and resilient digital ecosystems.

cs.CR↗

arXiv2024

Human-Centered AI Product Prototyping with No-Code AutoML: Conceptual Framework, Potentials and Limitations

This paper addresses the complexities inherent in AI product prototyping, focusing on the challenges posed by the probabilistic nature of AI behavior and the limited accessibility of prototyping tools to non-experts. A Design Science Research (DSR) approach is presented which culminates in a conceptual framework aimed at improving the AI prototyping process. Through a comprehensive literature review, key challenges were identified and no-code AutoML was analyzed as a solution. The framework describes the seamless incorporation of non-expert input and evaluation during prototyping, leveraging the potential of no-code AutoML to enhance accessibility and interpretability. A hybrid approach of combining naturalistic (case study) and artificial evaluation methods (criteria-based analysis) validated the utility of our approach, highlighting its efficacy in supporting AI non-experts and streamlining decision-making and its limitations. Implications for academia and industry, emphasizing the strategic integration of no-code AutoML to enhance AI product development processes, mitigate risks, and foster innovation, are discussed.

cs.HC↗

arXiv2024

Strategic Integration of Artificial Intelligence in the C-Suite: The Role of the Chief AI Officer

The integration of Artificial Intelligence (AI) into corporate strategy has become critical for organizations seeking to maintain competitive advantage in the digital age. Although organizations increasingly rely on AI as a strategic and organizational resource, existing C-suite roles remain only partially equipped to govern, integrate, and leverage it coherently at the enterprise level. Organizations vary in their responses. Some create a dedicated Chief AI Officer (CAIO), others extend existing mandates into hybrid roles, and still others coordinate AI through federated structures. This paper develops a role-design theory to explain this variation. I identify three properties that distinguish AI from earlier cross-cutting enterprise technologies - distributed accountability for judgment, upstream governance, and non-stationarity - and three configurations through which organizations respond: concentrated extension, distributed extension, and role creation. The CAIO Framework links these properties to the executive design problems they generate and to the functions and capabilities required of the dedicated role. Four propositions specify when a dedicated CAIO emerges, what form an organization's response takes, when the dedicated role is effective, and how configurations evolve over time. This paper contributes to research on executive leadership, organizational design, and digital governance by offering a theory-driven account of the strategic integration of AI at the executive level.

cs.CY↗

arXiv2024

Explainable Automated Machine Learning for Credit Decisions: Enhancing Human Artificial Intelligence Collaboration in Financial Engineering

This paper explores the integration of Explainable Automated Machine Learning (AutoML) in the realm of financial engineering, specifically focusing on its application in credit decision-making. The rapid evolution of Artificial Intelligence (AI) in finance has necessitated a balance between sophisticated algorithmic decision-making and the need for transparency in these systems. The focus is on how AutoML can streamline the development of robust machine learning models for credit scoring, while Explainable AI (XAI) methods, particularly SHapley Additive exPlanations (SHAP), provide insights into the models' decision-making processes. This study demonstrates how the combination of AutoML and XAI not only enhances the efficiency and accuracy of credit decisions but also fosters trust and collaboration between humans and AI systems. The findings underscore the potential of explainable AutoML in improving the transparency and accountability of AI-driven financial decisions, aligning with regulatory requirements and ethical considerations.

q-fin.RM↗

arXiv2023

Digital Deception: Generative Artificial Intelligence in Social Engineering and Phishing

The advancement of Artificial Intelligence (AI) and Machine Learning (ML) has profound implications for both the utility and security of our digital interactions. This paper investigates the transformative role of Generative AI in Social Engineering (SE) attacks. We conduct a systematic review of social engineering and AI capabilities and use a theory of social engineering to identify three pillars where Generative AI amplifies the impact of SE attacks: Realistic Content Creation, Advanced Targeting and Personalization, and Automated Attack Infrastructure. We integrate these elements into a conceptual model designed to investigate the complex nature of AI-driven SE attacks - the Generative AI Social Engineering Framework. We further explore human implications and potential countermeasures to mitigate these risks. Our study aims to foster a deeper understanding of the risks, human implications, and countermeasures associated with this emerging paradigm, thereby contributing to a more secure and trustworthy human-computer interaction.

cs.CR↗

arXiv2023

Securing the Digital World: Protecting smart infrastructures and digital industries with Artificial Intelligence (AI)-enabled malware and intrusion detection

The last decades have been characterized by unprecedented technological advances, many of them powered by modern technologies such as Artificial Intelligence (AI) and Machine Learning (ML). The world has become more digitally connected than ever, but we face major challenges. One of the most significant is cybercrime, which has emerged as a global threat to governments, businesses, and civil societies. The pervasiveness of digital technologies combined with a constantly shifting technological foundation has created a complex and powerful playground for cybercriminals, which triggered a surge in demand for intelligent threat detection systems based on machine and deep learning. This paper investigates AI-based cyber threat detection to protect our modern digital ecosystems. The primary focus is on evaluating ML-based classifiers and ensembles for anomaly-based malware detection and network intrusion detection and how to integrate those models in the context of network security, mobile security, and IoT security. The discussion highlights the challenges when deploying and integrating AI-enabled cybersecurity solutions into existing enterprise systems and IT infrastructures, including options to overcome those challenges. Finally, the paper provides future research directions to further increase the security and resilience of our modern digital industries, infrastructures, and ecosystems.

cs.CR↗

arXiv2022

Mobile Security for the modern CEO: Attacks, Mitigations, and Future Trends

Todays world is digital, global, and interconnected and mobile devices are at the heart of modern communications in business, politics, and civil society. However, cyber threats are an omnipresent reality in our hyper-connected world. The world economic forum ranks cyber threats consistently among the global top security risks. Attacks on mobile devices grow yearly in volume and magnitude causing severe damage. This paper offers a comprehensive overview of modern mobile attacks categorized into malware, phishing, communication, supply chain, physical, and authentication attacks, including a section on mitigations and limitations. It also provides security design tips to secure the mobile setup and general recommendations to prevent the successful execution of an incoming attack. The last section highlights future technology trends and how those will impact and change the mobile security landscape in the future.

cs.CR↗

arXiv2022

Deep Learning vs. Gradient Boosting: Benchmarking state-of-the-art machine learning algorithms for credit scoring

Artificial intelligence (AI) and machine learning (ML) have become vital to remain competitive for financial services companies around the globe. The two models currently competing for the pole position in credit risk management are deep learning (DL) and gradient boosting machines (GBM). This paper benchmarked those two algorithms in the context of credit scoring using three distinct datasets with different features to account for the reality that model choice/power is often dependent on the underlying characteristics of the dataset. The experiment has shown that GBM tends to be more powerful than DL and has also the advantage of speed due to lower computational requirements. This makes GBM the winner and choice for credit scoring. However, it was also shown that the outperformance of GBM is not always guaranteed and ultimately the concrete problem scenario or dataset will determine the final model choice. Overall, based on this study both algorithms can be considered state-of-the-art for binary classification tasks on structured datasets, while GBM should be the go-to solution for most problem scenarios due to easier use, significantly faster training time, and superior accuracy.

cs.LG↗

arXiv2022

Automated machine learning: AI-driven decision making in business analytics

The realization that AI-driven decision-making is indispensable in today's fast-paced and ultra-competitive marketplace has raised interest in industrial machine learning (ML) applications significantly. The current demand for analytics experts vastly exceeds the supply. One solution to this problem is to increase the user-friendliness of ML frameworks to make them more accessible for the non-expert. Automated machine learning (AutoML) is an attempt to solve the problem of expertise by providing fully automated off-the-shelf solutions for model choice and hyperparameter tuning. This paper analyzed the potential of AutoML for applications within business analytics, which could help to increase the adoption rate of ML across all industries. The H2O AutoML framework was benchmarked against a manually tuned stacked ML model on three real-world datasets. The manually tuned ML model could reach a performance advantage in all three case studies used in the experiment. Nevertheless, the H2O AutoML package proved to be quite potent. It is fast, easy to use, and delivers reliable results, which come close to a professionally tuned ML model. The H2O AutoML framework in its current capacity is a valuable tool to support fast prototyping with the potential to shorten development and deployment cycles. It can also bridge the existing gap between supply and demand for ML experts and is a big step towards automated decisions in business analytics. Finally, AutoML has the potential to foster human empowerment in a world that is rapidly becoming more automated and digital.

cs.LG↗

arXiv2022

Deep Learning in Business Analytics: A Clash of Expectations and Reality

Our fast-paced digital economy shaped by global competition requires increased data-driven decision-making based on artificial intelligence (AI) and machine learning (ML). The benefits of deep learning (DL) are manifold, but it comes with limitations that have, so far, interfered with widespread industry adoption. This paper explains why DL, despite its popularity, has difficulties speeding up its adoption within business analytics. It is shown that the adoption of deep learning is not only affected by computational complexity, lacking big data architecture, lack of transparency (black-box), skill shortage, and leadership commitment, but also by the fact that DL does not outperform traditional ML models in the case of structured datasets with fixed-length feature vectors. Deep learning should be regarded as a powerful addition to the existing body of ML models instead of a one size fits all solution. The results strongly suggest that gradient boosting can be seen as the go-to model for predictions on structured datasets within business analytics. In addition to the empirical study based on three industry use cases, the paper offers a comprehensive discussion of those results, practical implications, and a roadmap for future research.

cs.LG↗