Explainable AI (XAI) Models Applied to Planning in Financial Markets

9 Pages Posted: 13 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

Regime changes planning in financial markets is well known to be hard to explain and interpret. Can an asset manager ex-plain clearly the intuition of his regime changes prediction on equity market ? To answer this question, we consider a gradi-ent boosting decision trees (GBDT) approach to plan regime changes on S&P 500 from a set of 150 technical, fundamen-tal and macroeconomic features. We report an improved ac-curacy 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. Shapley values have recently been intro-duced from game theory to the field of ML. This approach allows a robust identification of the most important variables planning stock market crises, and of a local explanation of the crisis probability at each date, through a consistent features attribution. We apply this methodology to analyse in detail the March 2020 financial meltdown, for which the model of-fered a timely out of sample prediction. This analysis unveils in particular the contrarian predictive role of the tech equity sector before and after the crash.

Keywords: regime changes, regime detection, machine learning

JEL Classification: G11

Suggested Citation

Benhamou, Eric and Ohana, Jean-Jacques and Saltiel, David and Guez, Beatrice, Explainable AI (XAI) Models Applied to Planning in Financial Markets (June 8, 2021). Available at SSRN: https://ssrn.com/abstract=3862437 or http://dx.doi.org/10.2139/ssrn.3862437

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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