arXiv subjects

Philip Treleaven

Publications and source records attributed to Philip Treleaven.

30 records · Page 2Linked to original sources

arXiv2024

Limit Order Book Dynamics and Order Size Modelling Using Compound Hawkes Process

Hawkes Process has been used to model Limit Order Book (LOB) dynamics in several ways in the literature however the focus has been limited to capturing the inter-event times while the order size is usually assumed to be constant. We propose a novel methodology of using Compound Hawkes Process for the LOB where each event has an order size sampled from a calibrated distribution. The process is formulated in a novel way such that the spread of the process always remains positive. Further, we condition the model parameters on time of day to support empirical observations. We make use of an enhanced non-parametric method to calibrate the Hawkes kernels and allow for inhibitory cross-excitation kernels. We showcase the results and quality of fits for an equity stock's LOB in the NASDAQ exchange and compare them against several baselines. Finally, we conduct a market impact study of the simulator and show the empirical observation of a concave market impact function is indeed replicated.

q-fin.TR↗

arXiv2024

Cultural Alignment in Large Language Models: An Explanatory Analysis Based on Hofstede's Cultural Dimensions

The deployment of large language models (LLMs) raises concerns regarding their cultural misalignment and potential ramifications on individuals and societies with diverse cultural backgrounds. While the discourse has focused mainly on political and social biases, our research proposes a Cultural Alignment Test (Hoftede's CAT) to quantify cultural alignment using Hofstede's cultural dimension framework, which offers an explanatory cross-cultural comparison through the latent variable analysis. We apply our approach to quantitatively evaluate LLMs, namely Llama 2, GPT-3.5, and GPT-4, against the cultural dimensions of regions like the United States, China, and Arab countries, using different prompting styles and exploring the effects of language-specific fine-tuning on the models' behavioural tendencies and cultural values. Our results quantify the cultural alignment of LLMs and reveal the difference between LLMs in explanatory cultural dimensions. Our study demonstrates that while all LLMs struggle to grasp cultural values, GPT-4 shows a unique capability to adapt to cultural nuances, particularly in Chinese settings. However, it faces challenges with American and Arab cultures. The research also highlights that fine-tuning LLama 2 models with different languages changes their responses to cultural questions, emphasizing the need for culturally diverse development in AI for worldwide acceptance and ethical use. For more details or to contribute to this research, visit our GitHub page https://github.com/reemim/Hofstedes_CAT/

cs.CY↗

arXiv2024

The Effect of Model Size on LLM Post-hoc Explainability via LIME

Large language models (LLMs) are becoming bigger to boost performance. However, little is known about how explainability is affected by this trend. This work explores LIME explanations for DeBERTaV3 models of four different sizes on natural language inference (NLI) and zero-shot classification (ZSC) tasks. We evaluate the explanations based on their faithfulness to the models' internal decision processes and their plausibility, i.e. their agreement with human explanations. The key finding is that increased model size does not correlate with plausibility despite improved model performance, suggesting a misalignment between the LIME explanations and the models' internal processes as model size increases. Our results further suggest limitations regarding faithfulness metrics in NLI contexts.

cs.CL↗

arXiv2024

BERT vs GPT for financial engineering

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.

q-fin.ST↗

arXiv2024

Limit Order Book Simulations: A Review

Limit Order Books (LOBs) serve as a mechanism for buyers and sellers to interact with each other in the financial markets. Modelling and simulating LOBs is quite often necessary for calibrating and fine-tuning the automated trading strategies developed in algorithmic trading research. The recent AI revolution and availability of faster and cheaper compute power has enabled the modelling and simulations to grow richer and even use modern AI techniques. In this review we examine the various kinds of LOB simulation models present in the current state of the art. We provide a classification of the models on the basis of their methodology and provide an aggregate view of the popular stylized facts used in the literature to test the models. We additionally provide a focused study of price impact's presence in the models since it is one of the more crucial phenomena to model in algorithmic trading. Finally, we conduct a comparative analysis of various qualities of fits of these models and how they perform when tested against empirical data.

q-fin.TR↗

arXiv2024

Decentralized Token Economy Theory (DeTEcT)

This paper presents a pioneering approach for simulation of economic activity, policy implementation, and pricing of goods in token economies. The paper proposes a formal analysis framework for wealth distribution analysis and simulation of interactions between economic participants in an economy. Using this framework, we define a mechanism for identifying prices that achieve the desired wealth distribution according to some metric, and stability of economic dynamics. The motivation to study tokenomics theory is the increasing use of tokenization, specifically in financial infrastructures, where designing token economies is in the forefront. Tokenomics theory establishes a quantitative framework for wealth distribution amongst economic participants and implements the algorithmic regulatory controls mechanism that reacts to changes in economic conditions. In our framework, we introduce a concept of tokenomic taxonomy where agents in the economy are categorized into agent types and interactions between them. This novel approach is motivated by having a generalized model of the macroeconomy with controls being implemented through interactions and policies. The existence of such controls allows us to measure and readjust the wealth dynamics in the economy to suit the desired objectives.

q-fin.GN↗

arXiv2022

Machine Learning Modeling to Evaluate the Value of Football Players

In most sports, especially football, most coaches and analysts search for key performance indicators using notational analysis. This method utilizes a statistical summary of events based on video footage and numerical records of goal scores. Unfortunately, this approach is now obsolete owing to the continuous evolutionary increase in technology that simplifies the analysis of more complex process variables through machine learning (ML). Machine learning, a form of artificial intelligence (AI), uses algorithms to detect meaningful patterns and define a structure based on positional data. This research investigates a new method to evaluate the value of current football players, based on establishing the machine learning models to investigate the relations among the various features of players, the salary of players, and the market value of players. The data of the football players used for this project is from several football websites. The data on the salary of football players will be the proxy for evaluating the value of players, and other features will be used to establish and train the ML model for predicting the suitable salary for the players. The motivation is to explore what are the relations between different features of football players and their salaries - how each feature affects their salaries, or which are the most important features to affect the salary? Although many standards can reflect the value of football players, the salary of the players is one of the most intuitive and crucial indexes, so this study will use the salary of players as the proxy to evaluate their value. Moreover, many features of players can affect the valuation of the football players, but the value of players is mainly decided by three types of factors: basic characteristics, performance on the court, and achievements at the club.

cs.LG↗

arXiv2021

Multiscale Governance

Future societal systems will be characterized by heterogeneous human behaviors and also collective action. The interaction between local systems and global systems will be complex. Humandemics will propagate because of the pathways that connect the different systems and several invariant behaviors and patterns that have emerged globally. On the contrary, infodemics of misinformation can be a risk as it has occurred in the COVID-19 pandemic. The emerging fragility or robustness of the system will depend on how this complex network of systems is governed. Future societal systems will not be only multiscale in terms of the social dimension, but also in the temporality. Necessary and proper prevention and response systems based on complexity, ethic and multi-scale governance will be required. Real-time response systems are the basis for resilience to be the foundation of robust societies. A top-down approach led by Governmental organs for managing humandemics is not sufficient and may be only effective if policies are very restrictive and their efficacy depends not only in the measures implemented but also on the dynamics of the policies and the population perception and compliance. This top-down approach is even weaker if there is not national and international coordination. Coordinating top-down agencies with bottom-up constructs will be the design principle. Multi-scale governance integrates decision-making processes with signaling, sensing and leadership mechanisms to drive thriving societal systems with real-time sensitivity.

cs.CY↗

arXiv2020

QuantNet: Transferring Learning Across Systematic Trading Strategies

Systematic financial trading strategies account for over 80% of trade volume in equities and a large chunk of the foreign exchange market. In spite of the availability of data from multiple markets, current approaches in trading rely mainly on learning trading strategies per individual market. In this paper, we take a step towards developing fully end-to-end global trading strategies that leverage systematic trends to produce superior market-specific trading strategies. We introduce QuantNet: an architecture that learns market-agnostic trends and use these to learn superior market-specific trading strategies. Each market-specific model is composed of an encoder-decoder pair. The encoder transforms market-specific data into an abstract latent representation that is processed by a global model shared by all markets, while the decoder learns a market-specific trading strategy based on both local and global information from the market-specific encoder and the global model. QuantNet uses recent advances in transfer and meta-learning, where market-specific parameters are free to specialize on the problem at hand, whilst market-agnostic parameters are driven to capture signals from all markets. By integrating over idiosyncratic market data we can learn general transferable dynamics, avoiding the problem of overfitting to produce strategies with superior returns. We evaluate QuantNet on historical data across 3103 assets in 58 global equity markets. Against the top performing baseline, QuantNet yielded 51% higher Sharpe and 69% Calmar ratios. In addition we show the benefits of our approach over the non-transfer learning variant, with improvements of 15% and 41% in Sharpe and Calmar ratios. Code available in appendix.

cs.LG↗

arXiv2019

Generative Adversarial Networks for Financial Trading Strategies Fine-Tuning and Combination

Systematic trading strategies are algorithmic procedures that allocate assets aiming to optimize a certain performance criterion. To obtain an edge in a highly competitive environment, the analyst needs to proper fine-tune its strategy, or discover how to combine weak signals in novel alpha creating manners. Both aspects, namely fine-tuning and combination, have been extensively researched using several methods, but emerging techniques such as Generative Adversarial Networks can have an impact into such aspects. Therefore, our work proposes the use of Conditional Generative Adversarial Networks (cGANs) for trading strategies calibration and aggregation. To this purpose, we provide a full methodology on: (i) the training and selection of a cGAN for time series data; (ii) how each sample is used for strategies calibration; and (iii) how all generated samples can be used for ensemble modelling. To provide evidence that our approach is well grounded, we have designed an experiment with multiple trading strategies, encompassing 579 assets. We compared cGAN with an ensemble scheme and model validation methods, both suited for time series. Our results suggest that cGANs are a suitable alternative for strategies calibration and combination, providing outperformance when the traditional techniques fail to generate any alpha.

cs.LG↗

arXiv2018

A Machine Learning-based Recommendation System for Swaptions Strategies

Derivative traders are usually required to scan through hundreds, even thousands of possible trades on a daily basis. Up to now, not a single solution is available to aid in their job. Hence, this work aims to develop a trading recommendation system, and apply this system to the so-called Mid-Curve Calendar Spread (MCCS), an exotic swaption-based derivatives package. In summary, our trading recommendation system follows this pipeline: (i) on a certain trade date, we compute metrics and sensitivities related to an MCCS; (ii) these metrics are feed in a model that can predict its expected return for a given holding period; and after repeating (i) and (ii) for all trades we (iii) rank the trades using some dominance criteria. To suggest that such approach is feasible, we used a list of 35 different types of MCCS; a total of 11 predictive models; and 4 benchmark models. Our results suggest that in general linear regression with lasso regularisation compared favourably to other approaches from a predictive and interpretability perspective.

q-fin.PM↗

arXiv2015

Twitter Sentiment Analysis: Lexicon Method, Machine Learning Method and Their Combination

This paper covers the two approaches for sentiment analysis: i) lexicon based method; ii) machine learning method. We describe several techniques to implement these approaches and discuss how they can be adopted for sentiment classification of Twitter messages. We present a comparative study of different lexicon combinations and show that enhancing sentiment lexicons with emoticons, abbreviations and social-media slang expressions increases the accuracy of lexicon-based classification for Twitter. We discuss the importance of feature generation and feature selection processes for machine learning sentiment classification. To quantify the performance of the main sentiment analysis methods over Twitter we run these algorithms on a benchmark Twitter dataset from the SemEval-2013 competition, task 2-B. The results show that machine learning method based on SVM and Naive Bayes classifiers outperforms the lexicon method. We present a new ensemble method that uses a lexicon based sentiment score as input feature for the machine learning approach. The combined method proved to produce more precise classifications. We also show that employing a cost-sensitive classifier for highly unbalanced datasets yields an improvement of sentiment classification performance up to 7%.

cs.CL↗