Embed Size (px)
Citation preview
“Zest for Enlightenment”
Z/Yen Group LimitedRisk/Reward Managers5-7 St Helen’s PlaceLondon EC3A 6AUUnited Kingdomtel: +44 (20) 7562-9562
www.zyen.com
© Z/Yen Group2010
Compliance ArchitecturesThe Implications For Machine Learning
Professor Michael Mainelli, Executive Chairman
University College London
“The future will be better tomorrow.”Dan Quayle
www.zyen.com
© Z/Yen Group2010
Agenda
Who are Z/Yen?
Compliance issues
DAPR - Predict This!
Explaining PropheZy
In the field
Benefits
Working together
“If a man will begin with certainties, he will end in doubts; but if he will be content to begin with doubts, he will end in certainties.”
Francis Bacon
www.zyen.com
© Z/Yen Group2010
Z/Yen Overview
Special – mission is to be the foremost risk/reward management firm, “helping organisations to improve by making better decisions”Services – projects, systems, coaching/training, interim managersSectors – technology, finance, NGOs, professional services, outsourcingSome Highlights – British Computer Society Award, DTI Smart Award & Foresight Challenge Award, Global Financial Centres Index, Global Intellectual Property Index, Investment Banking CCC’s, The London Accord, IT for the Not-for-Profit Sector, Clean Business Cuisine
“I use not only all the brains I have, but all I can borrow.”Woodrow Wilson
www.zyen.com
© Z/Yen Group2010
Some Clients
Finance – Reuters, Morgan Stanley, JP Morgan, HSBC, Goldman Sachs, GA Partners, Thomas Miller, Barclays, CSFB, BPVoluntary Sector – Unison, British Red Cross, Cancer Research UK, The Childrens’ Society, Barnardo’sTechnology – 3Com, Hitachi, MoD/QinetiQ, Scottish Universities, Medicsight, Research in Motion, Vodafone, GlaxoSmithKlineProfessional Services – ICAEW, Hill & Knowlton, Kroll, Taylor WessingOutsourcing – Johnson Controls, East Sussex CC, British Gas, Deutsche Bank
www.zyen.com
© Z/Yen Group2010
Compliance Issues
Corporate Governance: 1992 Cadbury Report, 1995 Greenbury Report, 1998 Hampel Report, 1999 Turnbull Report and 2003 Higgs report; German KonTraG corporate governance reforms; Sarbanes-Oxley Act 2002; and the OECD Principles of Corporate Governance. General Compliance: Basel 2, Markets in Financial Instruments Directive (MiFID), Sarbanes-Oxley (Section 404), the Patriot Act, Anti-Money Laundering, the Financial Services Modernisation Act, the Insurance Mediation Directive Privacy and Electronic Communications (EC Directive) Regulations, the Freedom of Information Act 2000, substantially different International Financial Reporting Standards, Data Protection Act 1998 and the Financial Groups Directive. Regulators’ Rules: from the FSA, SEC, OCC, BAFIN, etc., let alone SAS 70 or ISO 9000 as voluntarily-incurred compliance, or industry trade association voluntary compliance codes. General Business Regulation: Health & Safety, COSHH, taxation, equal rights, etc.; let alone…
www.zyen.com
© Z/Yen Group2010
Compliance Costs
“Up to 15% of support staff at Dresdner Kleinwort Wasserstein are working on compliance projects or financial regulations, Stephen Ashton, director of global IT business management at the investment bank, revealed last week.” [Computer Weekly, 1 February 2005]
“Regulatory controls take up a sizeable proportion of spend. Basel 2 and Sarbanes-Oxley compliance is chewing up 40% of investment spend.” Kevin Lloyd, Barclays CTO [Computer Weekly, 15 June 2004]
Diffuse systems thinking
www.zyen.com
© Z/Yen Group2010
The Year(s) of OpRisk in Finance?
199X to 200X – market and credit analogies
Technology Knowledge - what price risk?
Willpower - why do anything? no capital allocation?
Discipline - imposed? Basel?
“Perfect numbers like perfect men are very rare.”René Descartes
www.zyen.com
© Z/Yen Group2010
Z/Yen – Risk/Reward
“Errors using inadequate data are much less than those using no data at all.”Charles Babbage
www.zyen.com
© Z/Yen Group2010
Risk/Reward Management
VolatilityReduction
RewardEnhancement
RiskAvoidance
‘Margin’
‘Stability’‘Flexibility’
Sustainability
www.zyen.com
© Z/Yen Group2010
Existing Approaches
Standards - fiduciary ratingsISO9000, SAS70
Manual Necessity 6Ʃ
6.03.499.9997%
5.032099.98%
4.06,21099.4%
3.066,80093.3%
2.0308,00069.2%
1.0690,00030.9%
SigmaDPMOYield
modelling
www.zyen.com
© Z/Yen Group2010
Activity-Based Cost Variance
New Approaches
Annual Volume and the r2 of the Relationship Between Cost per Trade and Trade Volume
1
10
100
1,000
10,000
100,000
1,000,000
10,000,000
100,000,000
1,000,000,000
US Sto
ck L
endin
g
Europ
ean
Cash
Equitie
s
Europ
ean
Sto
ck L
endin
g
Europ
ean
Excha
nge
Trade
d Der
ivativ
es
Europ
ean
Bonds
US Equ
ities
Global
Curre
ncy O
ption
s
US Bon
ds
Europ
ean
Repo
Global
FX
Global
Mon
ey M
arke
t
Global
Vanilla
Equ
ity O
ption
s
US Rep
o
Global
Credit
Der
ivativ
es
Global
IR D
eriva
tives
An
nu
al
Vo
lum
e T
rad
ed
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
r2
Total Volume r2
Dynamic Anomaly & Pattern Response
Environmental
Consistency
Confidence
KRI Losses
Stochastic Accounting Enterprise Risk/Reward Management Systems
TIS_deals_done
600 1200 100 180 0 5 15
2000
3500
600
1200
TIS_deals_amended
TIS_deals_entered_late
6014
0
100
180
Contracts_sent_after_delivery
X30_day_stdev_brent_price
0.5
2.0
3.5
05
15
BITS_incidents_occurred
2000 3500 60 140 0.5 2.0 3.5 0 5 15
05
15
BITS_incidents_discovered
Prediction Markets
www.zyen.com
© Z/Yen Group2010
Philosophical Splits
Six Sigma ISO9000
Total Quality
ChecklistsProceduresInspection
Numerical targetsEngineeringAutomation
ContributionCommitmentCulture
Measure Manage
Motivate
www.zyen.com
© Z/Yen Group2010
What is DAPR?
DynamicInitiates an actionReal-time
Anomaly & PatternIdentifies unusual behaviourReinforces successful patterns
ResponseAdaptive, moves with the dataIntegrative, can work without rebuilding the entire IT architecture
“Inertia can develop a momentum of its own.”attributed to Douglas Hurd by Lord Howe
www.zyen.com
© Z/Yen Group2010
How – IT Architecture
Bulk Load
Excel
Predict
Model
“Errors using inadequate data are much less than those using no data at all.” Charles Babbage
www.zyen.com
© Z/Yen Group2010
Anomalies
Y Axis: Share Identification Code
X Axis: Actual & Predicted Price Movement Bands – the length of the yellow link indicates the difference between the prediction and the actual value - the longest links represent the anomalous trades
Z Axis: The Difference between Actual & Predicted Price Movement Bands
www.zyen.com
© Z/Yen Group2010
Network Integration
www.zyen.com
© Z/Yen Group2010
Applications
Increase success rates among targets, reduce churn
Identify best sales techniques, bid approaches or cross-sales
Set targets for client revenue, profitability, bid success, satisfaction
as well as – television audience and time predictions, price-your-audit, property costs, credit scorecards, asylum seeker costs, song charts, satellite imagery, client targeting, customer satisfaction, bid success, project success/risk, homeland security, anti-money laundering …
“Science must begin with myths, and with the criticism of myths.”Karl Popper
www.zyen.com
© Z/Yen Group2010
Predict This!
PropheZy makes predictive applications using readily available data
PropheZy is based on a SVM as an ASP with XML architecture so it integrates with existing IT architectures
PropheZy’s development environment is Excel, reducing training and integration issues
“Although this may seem a paradox, all exact science is dominated by the idea of approximation.”Bertrand Russell
www.zyen.com
© Z/Yen Group2010
PropheZy Model – “Cast”
“The purpose of models is not to fit the data but to sharpen the questions.”Samuel Karlin
www.zyen.com
© Z/Yen Group2010
PropheZy Predict – “Forecast”
“Prediction is extremely difficult. Especially about the future.”Niels Bohr
www.zyen.com
© Z/Yen Group2010
Results – LSE Testing & DTI Smart Award
cred
it
diab
etes dn
a
hear
t lette
r
satim
age
segm
ent
vehi
cle
0.00
0.20
0.40
0.60
0.80
1.00E
rror
rat
e worst
best
average
PropheZy“unboosted”
PropheZy“boosted”
“96.37% of all statistics are made up.”Kevin D. Quitt
www.zyen.com
© Z/Yen Group2010
In The Field
Successful Applications
Global Intellectual Property Index
Global Financial Centres Index
Successful Research
Best Execution Compliance Automation
Predicting The Effectiveness of Grant-making
www.zyen.com
© Z/Yen Group2010
VizZy – Anomaly Detection
“You can only predict things after they've happened.”Eugene Ionesco
www.zyen.com
© Z/Yen Group2010
Real-time Enterprise
Coping with floods of rapidly changing information
Static MIS not good enough
Seeking robust, general-purpose tools suitable for many datasets
Moving from analytics to action
“There’s lies, damn lies, and statistics.”Benjamin Disraeli
www.zyen.com
© Z/Yen Group2010
DAPR in Finance
Best execution compliance automation
Liquidity prediction
Non-STP correction
Customer targeting
Operational risk and losses
Trade performance benchmarking
Opening prices
Automated “tipster”
Anti-money laundering
“Every scientific truth goes through three states: first, people say it conflicts with the Bible; next, they say it has been discovered before; lastly, they say they always
believed it.”Jean Louis Agassiz
www.zyen.com
© Z/Yen Group2010
Suitability
Need to investigate anomalies OR reinforce patternsTestable proposition
reasonable historic data (not necessarily large volumes) – consistent, validclear classification of outcomes
Data changes moving forwardAbility to use the predictionsFeedback loop on predictions
“Get a big picture grip on the details.”Chao Kli Ning
www.zyen.com
© Z/Yen Group2010
Packages
Service – predictions daily, weekly…
Application development and maintenance
ASP application development and maintenance
Licence – based on time, transactions, models, processing, users
Joint venture in information services“Strange as it may sound, the power of mathematics rests on its evasion of all
unnecessary thought and on its wonderful saving of mental operations.”Ernst Mach
www.zyen.com
© Z/Yen Group2010
PropheZy Outlook
Release 3.5 – statistical enhancementautomated boosting
iterative builds
3D Voronoi’s
automated column sensitivity, row anomaly
Release 4 – hyper-performancemultiple, parallel, super-computer
large-scale, real-time integration
“You don’t have to be cleverer than other people, you just have to be one day earlier.”Leo Szilard
www.zyen.com
© Z/Yen Group2010
Prediction Markets
www.zyen.com
© Z/Yen Group2010
Working Together?
Contact us for a
private discussion on
radical improvement.
“The future just ain’t what it used to be and, what’s more, it never was.”
Ira Hays
