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EspressoLover


Total Posts: 285
Joined: Jan 2015
 
Posted: 2016-03-31 04:44
Well I have very little background in options, so take what I say with a grain of salt. But here's how I would approach that problem. In trading, your actual objective is to maximize PnL, but that's a noisy, discontinuous, largely intractable function to optimize. So instead we use MSE because it's much better behaved and in most cases closely proxies the thing we care about.

But you want to think about how you might modify the objective function to more closely align with what you care about. I think the easiest solution for that type of problem is to use weighted MSE. If there's some method or algorithm that uses MSE, it's usually trivial to adapt it for weighted MSE. You want to put a higher weight on the points representing options that you care about. There's a number of metrics that you might use to scale weight: volume, log-volume, OI, near-moneyness, inverse of spread as a percent of price, etc.

You'd probably want to play around until you find something that looks intuitively correct. But the jist is that far-OTM illiquid, .04delta options are going to have much less of an influence on parameter training and model scoring than the important contracts.

Good questions outrank easy answers. -Paul Samuelson

levkly


Total Posts: 25
Joined: Nov 2014
 
Posted: 2016-04-06 09:59
Goldorak,

I use ensemble of many fix length slidings windows.
Do you have other dynamic approach?

Lebowski


Total Posts: 66
Joined: Jun 2015
 
Posted: 2016-04-06 16:01
@EL, thanks for sharing your ideas above. I've never really thought of MSE as a "proxy," but that explanation makes a lot of sense.

Azx


Total Posts: 27
Joined: Sep 2009
 
Posted: 2018-03-28 11:01
Marcos Lopez de Prado has written a new book on the subject: Advances in Financial Machine Learning.

jslade


Total Posts: 1115
Joined: Feb 2007
 
Posted: 2018-04-19 21:32
His book is pretty terrible; it has a chapter on quantum computing for crying out loud.

"Learning, n. The kind of ignorance distinguishing the studious."

Maggette


Total Posts: 1003
Joined: Jun 2007
 
Posted: 2018-04-19 22:07
My Business Partner ist fiddeling around with Quantum Computing as a hobby....he even went to conferences on QC in Maschine learning (at present there is no real application). He is tanken seriously by the IBM guys and researchers in the field. If I get his opinion right:

Pretending that in current state of QC you could do anything useful with it is simply fraud

Ich kam hierher und sah dich und deine Leute lächeln, und sagte mir: Maggette, scheiss auf den small talk, lass lieber deine Fäuste sprechen...

Nexis


Total Posts: 2
Joined: Feb 2018
 
Posted: 2018-04-20 11:28
And as far as I am aware Lopez de Prado has never made the claim that anything useful can be done with it at the moment.

@jslade Could you elaborate a bit? Would be very interested to hear what you think about the book.

Maggette


Total Posts: 1003
Joined: Jun 2007
 
Posted: 2018-04-20 11:35
+1 for a book review by jslade :).

My copy will probably arrive today. Hopefully I won't regret it too much.

Ich kam hierher und sah dich und deine Leute lächeln, und sagte mir: Maggette, scheiss auf den small talk, lass lieber deine Fäuste sprechen...
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