Friday, March 24, 2017

"Steve Cohen Is Trying to Teach Computers to Think Like Top Traders"

Substance abusing, egomaniac computers.

From Bloomberg, March 15:
Steven A. Cohen got rich by going with his gut on big trades. Now the billionaire trader is experimenting with another path: automating the decisions of his best money managers.

Cohen’s Point72 Asset Management, which oversees his $11 billion fortune, is parsing troves of data from its portfolio managers and testing models that mimic their trades, according to people familiar with the matter.

The wave of automation that’s sweeping finance, initially relegated to taking over mundane tasks, is starting to encroach the ranks of prized money managers who are among the industry’s highest paid. Cohen is pursuing this effort after producing his second-worst year as a trader and as he prepares to return to the hedge fund industry at a time of intense investor pressure on fees.

Unabashed in his view that the industry is short of talent, Cohen has ramped up the project over the past year or so, said the people, who asked not to be named discussing internal matters.

Using analyst recommendations as an input, the effort involves examining the DNA of trades: the size of positions; the level of risk and leverage; and whether an investment was hedged, said one of the people. It also entails looking at the timing of trades, assessing pricing and liquidity in the market, and the duration over which managers build positions.

The model will identify patterns and relationships based on those analytics and seek to replicate bets, the people said. Point72 is also experimenting with automating the work of its execution traders, who place buy and sell orders with brokers on behalf of money managers.
Machines will never get the big paychecks Cohen has doled out. At his former hedge fund, SAC Capital Advisors, portfolio managers earned about 15 percent to 25 percent of profits they generated. Top performers took home as much as 30 percent -- which routinely translated into eight-figure payouts annually. Last year, Cohen changed the bonus structure with Point72 managers earning as much as 25 percent but only on the money they make above a market benchmark, or so-called alpha....MORE
Probably related:
"Cycles of Insanity and Creativity Within Contemplative Neural Systems"
Oh great.
Now we're making machines that exhibit psychopathologies....
A Major Flaw: "Ethical Trap: Robot Paralyzed by Choice of Who to Save"
You don't want hesitation in your robotrader....

...At the same time you want the computer to discriminate between the command "Execute the trade" and the command "Execute the trader". 
And dozens more.