Michele Aghassi - Unintended Bets Everywhere (S6E7)
Flirting with Models
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The Fragileness of Optimization
In finance, there's usually an inherent lack of precision because we're often working with low accuracy predictions. Unless you tell an optimizer otherwise, it thinks that all of the inputs are known with certainty. So as a result, it makes sense that the outputs often end up being overfit to those inputs. That can have a number of negative side effects on the portfolio. The good news is that there are effective ways of mitigating these unwanted behaviors.
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