The theory that will take artificial intelligence to the trading floor

If you want to make money in finance, you are probably pursuing'alpha.' But alpha generation is not easy: it requires time series forecasting. It also requires that your (hopefully good) forecasts are turned into profits - and this is where things can get complicated. When you work on the buy-side in finance, you can realize alpha either by placing orders and trading (aggressing) or by slightly modifying – skewing – the prices that you are quoting to others (known as passive risk management, as opposed to aggressive trading). In each case you leak some information about your forecast to the market – and therefore interact with the very object that you are trying to predict.