Machine learning in finance: Theoretical foundations
ECTS:
3
Course Hours:
21
Tutorials Hours:
0
Language:
French
Examination Modality:
mém.
Objective
The aim of this lecture is to introduce some fundamental concepts and techniques from machine learning and deep learning with a view towards important and recent applications in finance : This includes advanced techniques in scoring, text mining for stock market prediction, hedging/pricing of options, calibration of models, optimal transport and robust finance, numerical resolution of high-dimensional non-linear partial differential equations arising for instance in stochastic control and portfolio selection, market generators.
Planning
Part I: Fundamental concepts from machine learning (9h)
- Presentation of the main machine learning algorithms
- Overlearning: penalization, regularization, cross-validation
- Presentation of the main scoring techniques
- Deep learning
- Multi-layer feedforward neural networks, convolutional, recurrent networks.
- Backpropagation, stochastic gradient for training.
- Implementation with TensorFlow
Part II: Applications in finance (15h)
- Text data processing and stock market prediction (3h)
- Deep hedging and deep calibration (3h)
- Deep reinforcement learning and applications (6h)
- Q-learning algorithms, policy gradient, actor-critic algorithm
- Stochastic control and portfolio optimization
- Nonlinear PDE, American option pricing, counterparty risk (CVA).
4. Market generators and deep simulation (3h)
References
- A. Bachouch, C. Huré, N. Langrené, H. Pham : Deep neural networks algorithms for stochastic control problems on finite horizon, part II, numerical applications : Methodology and Computing in Applied Probability.
- D. Bloch : Machine learning : models and algorithms, Quantitative Analytics, 2020.
- H. Buehler, L. Gonon, J. Teichmann, B. Wood : Deep hedging, Quantitative Finance, 19(8), 1271-1291, 2019.
- C. Huré, H. Pham, X. Warin : Deep backward schemes for high-dimensional nonlinear PDEs, Mathematics of Computation. 2020
- M. Hamdouche, P. Henry Labordère, H.Pham: Generative modeling for time series via Schrödinger bridge, 2023
- M. Lopez de Prado : Advances in machine learning, Wiley, 2016.
- M. Germain, H. Pham, X. Warin: Neural networks-based algorithms for stochastic control and PDEs in finance, Machine Learning and Data Sciences for Financial Markets: a guide to contemporary practices, Cambridge University Press, 2023, Editors: Agostino Capponi and Charles-Albert Lehalle
- M. Dixon, I. Halperin, P. Bilokon: Machine learning in Finance, 2020, Springer.