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Knowledge Base Articles

Part II - Artificial Neural Networks as a Substitute to LSMC and Nested Simulations

In this article series we present a machine learning-based approach to solving a common problem in financial modelling where one is faced with the task of estimating the value of a function which requires a significant amount of computation to evaluate. More specifically a function that corresponds to a so called nested simulation aimed at for example estimating a capital requirement for a financial institution or the risk associated with a structured product for a retail investor.

Part III - Portfolio Construction - The Real World Analysis

In the third and the final part of our “Portfolio Construction” article series, the findings of the previous sections are applied to a broader and more realistic set of assets to evaluate the performance of the proposed methods against more conventional techniques.

Beyond Modern Portfolio Theory: Expected Utility Optimisation

The modern wealth management industry still relies on the 50-year-old approaches to portfolio management, widely popularized by Markowitz's Modern Portfolio Theory (1952). Despite heavy criticism within the academic circles, the alternative methods remain undeservingly overlooked in practice. In the context of the modern leap for hyper-customization, we look into one of the alternatives to Modern Portfolio Theory in greater detail - the Utility-based approach.

Part II - Portfolio Construction - Sampling & Optimisation

The second part of the “Portfolio Construction”-series explores whether introducing parameter uncertainty to the model would improve the out-of-sample performance of the optimal portfolio. Additionally, the article proposes and tests two adjustments to regular utility optimisation.

Part I - Portfolio Construction - Parameter & Model Uncertainty

There is a number of challenges associated with portfolio construction based on historical data. This three-part article series explores some of the most common issues attributed to the model-based portfolio optimization: the sensitivity to changes in data, large variations in portfolio weights and the bad out-of-sample performance.

Hierarchical Clustering: Prediction of Systematic Underperformance

As machine learning methods grow in use and popularity, we explore yet another dimension of wealth management that our experts consider fit for applying such frameworks. In this article, we deploy hierarchical clustering to find more consistent ways of predicting the relative future performance of funds.

Part III: Asset and Liability Management Using LSMC - Allocation Optimisation

In the third and concluding article in the ALM using LMSC series, we focus on analyzing the optimal asset allocations in the context of changing asset classes as well as finding the optimal allocation by maximizing the risk-adjusted net asset value. The estimates based on the LSMC method are then compared to the estimates obtained from the full nested Monte Carlo method.

Part II: Asset and Liability Management Using LSMC - Accuracy and Performance

The second part of the series exploring the use of Least Squares Monte Carlo in Asset and Liability Management is focused on evaluation of accuracy and performance of this method in comparison to full nested Monte Carlo simulation benchmarks.

Blog Articles

Choosing Analytical Tools for Digital Financial Journeys: What matters?

The digitalisation process in finance is rarely linear and intuitive, therefore, it might be challenging to find a tool that best suits one’s vision. While there are not (yet) any established criteria to consider when building cutting-edge analytical capabilities within digital financial planning, we have identified a few that we frequently use to secure efficient product development on a day-to-day basis. From model quality and granularity to transparency, we believe these elements to be beneficial when one is planning their digitalisation journey.

Navigating the Modern Financial News Feed

Regardless of your level of professionalism as an investor, having access to relevant news with different perspectives on your assets is valuable. However, although useful for some, the high volume of the accessible news can be exhausting for non-professional investors. That is why we decided to discuss the way of delivering news in a concise and intuitive manner. Rather than having a large set of news titles summarizing your portfolio, it can be neatly compressed by using natural language processing. To explain, NLP is used to model human language and transform spoken words into written text, translate languages, answer questions and even generate synthetic text pieces. Using technological progress as a tool to increase the value for the client isn’t necessary insignificant as it indeed serves a purpose of delivering information in a way which engages the end user.

Balancing Innovation: Use Both Hands in Establishing Robotic Advice!

In the wake of rapid technological advancements and looming regulatory challenges, large players of the British financial industry turn to innovation as a tool to preserve the margins high and keep the customers satisfied. However, the extent to which the multinational giants commit to letting their new offerings cannibalize their traditional businesses varies dramatically.

Mitigating Risk: A Joint Model for High-Yield and Investment-Grade Credit Indices

Today, there are many flawed corporate bond pricing models. However, there is also a novel credit-spread approach that can simulate index prices and accurately capture probability of default, enabling better risk management and regulatory compliance.