Neural networks pose challenges in finance due to small datasets and unstable outputs, requiring faster and more precise solutions.
Alternative methods like Generalized Stochastic Sampling and Functional Tensor Train offer improved accuracy and computational efficiency for financial applications.
Deep dives
Challenges of Neural Networks in Finance
Vladimir discusses the limitations of neural networks in finance, highlighting issues such as training time, predictability, and explainability of outputs. While neural networks have found success in various applications like image recognition, finance presents unique challenges with small datasets and specific problem structures. Vladimir emphasizes the need for faster and more precise methods tailored to financial problems.
Black Box Effect and Stability Challenges
Alexander addresses the black box nature of neural networks, highlighting the opacity and lack of interpretability in financial applications. He points out the challenges of financial data's regime shifts and the instability of outputs with parameter changes. Financial data's dynamic nature contrasts with the stability of other domains like languages, impacting neural networks' predictive accuracy in finance.
Alternatives to Deep Neural Networks
Vladimir and Alexander introduce two alternative methods to deep neural networks for finance: Generalized Stochastic Sampling and Functional Tensor Train. These methods focus on faster, more accurate approximations of slow functions with improved explainability. While still in early adoption stages, these methods offer enhanced computational efficiency and precision compared to deep neural networks in financial applications.