Book Image

Machine Learning for Finance

By : Jannes Klaas
Book Image

Machine Learning for Finance

By: Jannes Klaas

Overview of this book

Machine Learning for Finance explores new advances in machine learning and shows how they can be applied across the financial sector, including insurance, transactions, and lending. This book explains the concepts and algorithms behind the main machine learning techniques and provides example Python code for implementing the models yourself. The book is based on Jannes Klaas’ experience of running machine learning training courses for financial professionals. Rather than providing ready-made financial algorithms, the book focuses on advanced machine learning concepts and ideas that can be applied in a wide variety of ways. The book systematically explains how machine learning works on structured data, text, images, and time series. You'll cover generative adversarial learning, reinforcement learning, debugging, and launching machine learning products. Later chapters will discuss how to fight bias in machine learning. The book ends with an exploration of Bayesian inference and probabilistic programming.
Table of Contents (15 chapters)
Machine Learning for Finance
Contributors
Preface
Other Books You May Enjoy
Index

Heuristic, feature-based, and E2E models


Before we dive into developing models to detect fraud, let's take a second to pause and ponder over the different kinds of models we could build.

  • A heuristic-based model is a simple "rule of thumb" developed purely by humans. Usually, the heuristic model stems from having an expert knowledge of the problem.

  • A feature-based model relies heavily on humans modifying the data to create new and meaningful features, which are then fed into a (simple) machine learning algorithm. This approach mixes expert knowledge with learning from data.

  • An E2E model learns purely from raw data. No human expertise is used, and the model learns everything directly from observations.

In our case, a heuristic-based model could be created to mark all transactions with the TRANSFER transaction type and an amount over $200,000 as fraudulent. Heuristic-based models have the advantage that they are both fast to develop and easy to implement; however, this comes with a pay-off, their...