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

A brief primer on tree-based methods


No chapter on structured data would be complete without mentioning tree-based methods, such as random forests or XGBoost.

It is worth knowing about them because, in the realm of predictive modeling for structured data, tree-based methods are very successful. However, they do not perform as well on more advanced tasks, such as image recognition or sequence-to-sequence modeling. This is the reason why the rest of the book does not deal with tree-based methods.

Note

Note: For a deeper dive into XGBoost, check out the tutorials on the XGBoost documentation page: http://xgboost.readthedocs.io. There is a nice explanation of how tree-based methods and gradient boosting work in theory and practice under the Tutorials section of the website.

A simple decision tree

The basic idea behind tree-based methods is the decision tree. A decision tree splits up data to create the maximum difference in outcomes.

Let's assume for a second that our isNight feature is the greatest...