Planning in Financial Markets in Presence of Spikes: Using Machine Learning GBDT

9 Pages Posted: 17 Jun 2021

See all articles by Eric Benhamou

Eric Benhamou

Université Paris Dauphine; EB AI Advisory; AI For Alpha

Jean-Jacques Ohana

Université Paris Dauphine

David Saltiel

A.I. Square Connect; AI For Alpha

Beatrice Guez

AI For Alpha

Date Written: June 8, 2021

Abstract

Planning in financial markets is a difficult task as the method needs to dramatically change its behavior when facing very rare black swan events like crises that shift market regime. In order to address this challenge, we present a gradient boosting decision trees (GBDT) approach to predict large price drops in equity indexes from a set of 150 technical, fundamental and macroeconomic features. We report an improved accu-racy of GBDT over other machine learning (ML) methods on the S&P 500 futures prices. We show that retaining fewer and carefully selected features provides improvements across all ML approaches. We show that this model has a strong predic-tive power. We train the model from 2000 to 2014, a period where various crises have been observed and use a validation period of 3 years to find hyperparameters. The fitted model timely forecasts the Covid crisis giving us a planning method for early detection of potential future crises.

Keywords: Machine Learning, GBDT

JEL Classification: G11

Suggested Citation

Benhamou, Eric and Ohana, Jean-Jacques and Saltiel, David and Guez, Beatrice, Planning in Financial Markets in Presence of Spikes: Using Machine Learning GBDT (June 8, 2021). Available at SSRN: https://ssrn.com/abstract=3862428 or http://dx.doi.org/10.2139/ssrn.3862428

Eric Benhamou (Contact Author)

Université Paris Dauphine ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

EB AI Advisory ( email )

35 Boulevard d'Inkermann
Neuilly sur Seine, 92200
France

AI For Alpha ( email )

35 boulevard d'Inkermann
Neuilly sur Seine, 92200
France

Jean-Jacques Ohana

Université Paris Dauphine ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

David Saltiel

A.I. Square Connect ( email )

35 Boulevard d'Inkermann
Neuilly sur Seine, 92200
France

AI For Alpha ( email )

35 boulevard d'Inkermann
Neuilly sur Seine, 92200
France

Beatrice Guez

AI For Alpha ( email )

35 boulevard d'Inkermann
Neuilly sur Seine, 92200
France

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