ReSolve’s own Dr Andrew Butler on Integrating Prediction with Optimization
#ReSolveRiffs
Our guest this week was Dr. Andrew Butler, Chief Investment Officer here at ReSolve. He has an Honors B.Sc. in Applied Mathematics & Physics from Memorial University, an M.A. in Applied Mathematics & Statistics, Financial Engineering from York University, and a PhD from the University of Toronto, Department of Mechanical & Industrial Engineering. Our conversation covered:
• Mentors, studying optimization, machine learning and emulating similarities
• Comparing methodologies used in calculating oil reserves, with empirical finance
• Mathematics, known truths, soft axioms and assumptions
• Data science, tools and hypothesis tests in finance
• Comparing the definitions of “noise” and different scientific methods
• Regression types, relationships and features
• Existing models vs creating models with data
• Hyperparameters, universes, good decision-making and edges
• The fallacy of “The Efficient Frontier” in Modern Portfolio Theory
• Methods that make for good choices, and setting expectations
• Neural Networks, financial data extraction and optimization science
• Building complex models, integrating and optimizing predictions, and making decisions
• Counterintuitive predictions and “explainability” – integrated vs optimized models
• Optimizing for decision accuracy by minimizing prediction error
• Using Decision Trees, Ensembles and Boosting
• Market data and making predictions using de-coupled vs integrated approaches
• Training models and optimizing, going forward
• Optimal covariance shrinkage and minimizing error
• Constrained vs unconstrained mean variance portfolios, de-coupled vs integrated, in a managed futures context
• The effect of constraints in limiting models from being “different”
• The practical takeaways about integrated solutions for Advisors and Portfolio Managers
• The value of humility in optimizing for financial markets – knowledge, wisdom and experience
• Stochastic dominance vs t-tests
• Time horizons – size matters
• The Consultant Industry – monthly data vs understanding process
• And much more
This is "ReSolve's Riffs" – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day, hosted by Adam Butler, Mike Philbrick and Rodrigo Gordillo of ReSolve Global* and Richard Laterman of ReSolve Asset Management.
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*ReSolve Global refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association ("NFA"). Further, ReSolve Global is a registered person with the Cayman Islands Monetary Authority.