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> "AI run hedge fund blows up due to black swan event" Knight Capital, 2012: https://www.bloomberg.com/news/articles/2012-08-02/knight-shows-how-to-lose-440-m

by feral 10y ago

> "AI run hedge fund blows up due to black swan event" Knight Capital, 2012: https://www.bloomberg.com/news/articles/2012-08-02/knight-shows-how-to-lose-440-million-in-30-minutes https://www.bloomberg.com/news/articles/2012-08-02/knight-sh...

brilliantcode 10y ago
How many of these hedge funds running on AI are out there in America? I'd think one would make a lot of money shorting such outfits.
- sanswork 10y ago
  That would only work if you'd expect these events to be frequent enough that you wouldn't have to short for very long or else the costs of your short would outpace any possible profit very quickly.
- gnaritas 10y ago
  Only if you can time when they're going to fail. It's not enough to be right, you have to be right at the right time.
  - brilliantcode 10y ago
    I know with high confidence that these AI run hedge fund outfits reverts to a zero sum mean. Doesn't mean that there won't be one or two that beats the market for sometime as a whataboutism. The timing is a major issue, it's tough to at what year these AI hedge funds fail. The other capital that blew up from the comments suggest it was more of a human error that led to deployment failures which is exactly why AI hedge funds is such a paradox. At the end of the day, it's humans that's deploying and building the model to be approximately right with high degree of accuracy but in the day trading environment it is a poor model for success-not only do you have to be right your monetary exposure must be right...."but proper money management and you will be fine" said everyone who took part in this zero sum game. I don't know, prove me wrong, I'm sure those ivy league engineers on wall street aren't getting paid dimes for what they do.
reso 10y ago
I believe the poster meant a machine-learning system blowing up (catastrophic trading loss) due to a black swan event that the system wasn't trained to deal with. Knight's blow-up was a process/sysops failure, not due to their strategies going wonky. [As a side note I believe their core strategies were human-analyst designed, not ML based, but I could be wrong.]
- beambot 10y ago
  Wouldn't process & sysops failures count as blackswan events if the AI or ML algorithms weren't trained to deal with those types of hiccups?
- deleted 10y ago
  [deleted]
throwaway_374 10y ago
Not quite. This was merely a simple deployment mishap due to repurposing a flag which triggered deprecated code paths that should have been gutted out.
tma-1 10y ago
That wasn't really an AI failure: https://en.wikipedia.org/wiki/Knight_Capital_Group#2012_stock_trading_disruption https://en.wikipedia.org/wiki/Knight_Capital_Group#2012_stoc...
- sly010 10y ago
  Even if a human deployed it, considering that everything automated by a computer can now be called AR by PR agencies it is an AI failure ;)

by feral 10y ago

brilliantcode 10y ago

How many of these hedge funds running on AI are out there in America? I'd think one would make a lot of money shorting such outfits.

sanswork 10y ago
That would only work if you'd expect these events to be frequent enough that you wouldn't have to short for very long or else the costs of your short would outpace any possible profit very quickly.
gnaritas 10y ago
Only if you can time when they're going to fail. It's not enough to be right, you have to be right at the right time.
- brilliantcode 10y ago
  I know with high confidence that these AI run hedge fund outfits reverts to a zero sum mean. Doesn't mean that there won't be one or two that beats the market for sometime as a whataboutism. The timing is a major issue, it's tough to at what year these AI hedge funds fail. The other capital that blew up from the comments suggest it was more of a human error that led to deployment failures which is exactly why AI hedge funds is such a paradox. At the end of the day, it's humans that's deploying and building the model to be approximately right with high degree of accuracy but in the day trading environment it is a poor model for success-not only do you have to be right your monetary exposure must be right...."but proper money management and you will be fine" said everyone who took part in this zero sum game. I don't know, prove me wrong, I'm sure those ivy league engineers on wall street aren't getting paid dimes for what they do.

reso 10y ago

I believe the poster meant a machine-learning system blowing up (catastrophic trading loss) due to a black swan event that the system wasn't trained to deal with. Knight's blow-up was a process/sysops failure, not due to their strategies going wonky. [As a side note I believe their core strategies were human-analyst designed, not ML based, but I could be wrong.]

beambot 10y ago
Wouldn't process & sysops failures count as blackswan events if the AI or ML algorithms weren't trained to deal with those types of hiccups?
deleted 10y ago
[deleted]

throwaway_374 10y ago

Not quite. This was merely a simple deployment mishap due to repurposing a flag which triggered deprecated code paths that should have been gutted out.

tma-1 10y ago

That wasn't really an AI failure: https://en.wikipedia.org/wiki/Knight_Capital_Group#2012_stock_trading_disruption https://en.wikipedia.org/wiki/Knight_Capital_Group#2012_stoc...

sly010 10y ago
Even if a human deployed it, considering that everything automated by a computer can now be called AR by PR agencies it is an AI failure ;)