Machine Learning and Corporate Bond Trading

Abstract

We demonstrate how machine learning based recommender systems can be effectively employed by market makers to filter the information embedded in Requests for Quote (RFQs) to identify the set of clients most likely to be interested in a given bond, or, conversely, the set of bonds that are most likely to be of interest to a given client. We consider several approaches known in the literature and ultimately suggest the so-called latent factor collaborative filtering as the best choice. We also suggest a scalable optimization procedure that allows the training of the system with a limited computational cost, making collaborative filtering practical in an industrial environment.

Keywords: Machine Learning, Recommender Systems, Collaborative Filtering, Corporate Bond Trading