May 25th, 2017– The Economist
MACHINE-LEARNING is beginning to shake up finance. A subset of artificial intelligence (AI) that excels at finding patterns and making predictions, it used to be the preserve of technology firms. The financial industry has jumped on the bandwagon. To cite just a few examples, “heads of machine-learning” can be found at PwC, a consultancy and auditing firm, at JP Morgan Chase, a large bank, and at Man GLG, a hedge-fund manager. From 2019, anyone seeking to become a “chartered financial analyst”, a sought-after distinction in the industry, will need AI expertise to pass his exams.
Despite the skepticism of many, including, surprisingly, some “quant” hedge funds that specialize in algorithm-based trading, machine-learning is poised to have a big impact. Innovative fintech firms and a few nimble incumbents have started applying the technique to everything from fraud protection to finding new trading strategies—promising to upend not just the humdrum drudgery of the back-office, but the more glamorous stuff up-front.
Machine-learning is already much used for tasks such as compliance, risk management, and fraud prevention. Intelligent Voice, a British firm, sells its machine-learning-driven speech-transcription tool to large banks to monitor traders’ phone calls for signs of wrongdoing, such as insider trading. Other specialists, like Xcelerit or Kinetica, offer banks and investment firms near-real-time tracking of their risk exposures, allowing them to monitor their capital requirements at all times……..
Quant hedge funds, both new and old, are piling in. Castle Ridge Asset Management, a Toronto-based upstart, has achieved annual average returns of 32% since its founding in 2013. It uses a sophisticated machine-learning system, like those used to model evolutionary biology, to make investment decisions. It is so sensitive, claims the firm’s chief executive, Adrian de Valois-Franklin, that it picked up 24 acquisitions before they were even announced (because of telltale signals suggesting a small amount of insider trading). Man AHL, meanwhile, a well-established $18.8bn quant fund provider, has been conducting research into machine-learning for trading purposes since 2009, and using it as one of the techniques to manage
Read more here: http://www.economist.com/news/finance-and-economics/21722685-fields-trading-credit-assessment-fraud-prevention-machine-learning?fsrc=rss