Fully automated futures trading

Hi GAT, I just saw the below on BBG. What are your thoughts on machine learning?

Thanks, B

Man Group is more interested in hiring engineers and data scientists than MBAs. The reason: artificial intelligence is proving a winner. The firm's AHL Dimension fund started using machine learning in 2014 and has returned double the industry average over the past three years. But there's still room for humans. They get to examine unusual AI trades before execution.
 
Bogwaluth said:
Hi GAT, I just saw the below on BBG. What are your thoughts on machine learning?

Thanks, B

Man Group is more interested in hiring engineers and data scientists than MBAs. The reason: artificial intelligence is proving a winner. The firm's AHL Dimension fund started using machine learning in 2014 and has returned double the industry average over the past three years. But there's still room for humans. They get to examine unusual AI trades before execution.
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AHL has never hired MBAs. When I was working there we only had one, and he wasn't a researcher or PM.

And I've said before that 'machine learning' is a meaningless term. There's supervised learning, which includes things like doing traditional regression, hardly a new concept. Then there's unsupervised learning, which terrifies the hell out of me.

And 'Data scientist' is an equally stupid meaningless term for a job that's existed for decades.

Having said that this weird stuff is a relatively small part of AHL's AUM, and if I'm being cynical, a bit of a marketing tool. Not a pop at AHL specifically, this goes for most funds (ignoring the newer, smaller funds which are using only AI and for which frankly I'm pessimistic of their future).

GAT
 
maciejz said:
I get the index data for the S&P500 and STOXX to calculate the historical volatility; I use the VIX and VSTOXX index (as opposed to futures) values as the implied volatility.
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Just FYI if you are using VIX or VSTOXX as "implied" you will be getting consistently incorrect results. I will "leave it to the reader" to work out what exactly the issue is.
 
curiousGeorge8 said:
I also saw the news from Bloomberg on Man seemly success story of applying machine learning to trading and was wondering about it.
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Besides the obvious ML stuff (e.g. NLP for news or filings analysis), there are pockets where SML techniques have proven to be very useful, for example where you need to be combining signals from multiple factors. I, however, have never seen it as a source of alpha.
 
globalarbtrader said:
AHL has never hired MBAs. When I was working there we only had one, and he wasn't a researcher or PM.

And I've said before that 'machine learning' is a meaningless term. There's supervised learning, which includes things like doing traditional regression, hardly a new concept. Then there's unsupervised learning, which terrifies the hell out of me.

And 'Data scientist' is an equally stupid meaningless term for a job that's existed for decades.

Having said that this weird stuff is a relatively small part of AHL's AUM, and if I'm being cynical, a bit of a marketing tool. Not a pop at AHL specifically, this goes for most funds (ignoring the newer, smaller funds which are using only AI and for which frankly I'm pessimistic of their future).

GAT
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Yes I read that report too, and imho it did read as having been written by some wide-eyed reporter stuck right up someone's 'PR machine' to put it politely.

On a separate topic, I have been looking at how to set up rolling in my system. Following your guidance, I understand you continue to use the signal from the legacy contract until you have fully rolled out to the next one on the delivery calendar. Do you find that this sometimes causes you to adjust the position size immediately upon the roll due to the different underlying volatility and price of the new contract? The problem I see could be acute if say I am only trading a single calendar month (Dec) due to seasonality. Also, the carry on the far Dec might be far lower than the carry on the near Dec also potentially increasing the required adjustment. Any guidance on your experience here would be much appreciated.
 
Elder said:
Yes I read that report too, and imho it did read as having been written by some wide-eyed reporter stuck right up someone's 'PR machine' to put it politely.

On a separate topic, I have been looking at how to set up rolling in my system. Following your guidance, I understand you continue to use the signal from the legacy contract until you have fully rolled out to the next one on the delivery calendar. Do you find that this sometimes causes you to adjust the position size immediately upon the roll due to the different underlying volatility and price of the new contract? The problem I see could be acute if say I am only trading a single calendar month (Dec) due to seasonality. Also, the carry on the far Dec might be far lower than the carry on the near Dec also potentially increasing the required adjustment. Any guidance on your experience here would be much appreciated.
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The position size won't be adjusted immediately as the vol estimate is done on a rolling basis (ewma). But yes if the vol jumps on the new contract then over the subsequent weeks the position size will adjust.

I also use a smoothed estimate for carry so again over a few weeks the signal will adjust here.

These effects are small and don't increase trading unduly as long as you avoid trading eg the very front of Eurodollar where the vol jumps are significant.

GAT
 
globalarbtrader said:
The position size won't be adjusted immediately as the vol estimate is done on a rolling basis (ewma). But yes if the vol jumps on the new contract then over the subsequent weeks the position size will adjust.

I also use a smoothed estimate for carry so again over a few weeks the signal will adjust here.

These effects are small and don't increase trading unduly as long as you avoid trading eg the very front of Eurodollar where the vol jumps are significant.

GAT
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Yup. Got it, thanks.
 
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