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

Kalman filters


Kalman filters are a method of extracting a signal from either noisy or incomplete measurements. They were invented by Hungarian-born, American engineer, Rudolf Emil Kalman, for the purpose of electrical engineering, and were first used in the Apollo Space program in the 1960s.

The basic idea behind the Kalman filter is that there is some hidden state of a system that we cannot observe directly but for which we can obtain noisy measurements. Imagine you want to measure the temperature inside a rocket engine. You cannot put a measurement device directly into the engine, because it's too hot, but you can have a device on the outside of the engine.

Naturally, this measurement is not going to be perfect, as there are a lot of external factors occurring outside of the engine that make the measurement noisy. Therefore, to estimate the temperature inside the rocket, you need a method that can deal with the noise. We can think of the internal state in the page forecasting as the actual...