Creating Effective Revenue Forecast Models for CCAR · Creating Effective Revenue Forecast Models...
Transcript of Creating Effective Revenue Forecast Models for CCAR · Creating Effective Revenue Forecast Models...
Creating Effective Revenue Forecast Models for CCAR
Michael Woods, Principal Data Scientist March 25, 2015
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Complexity is the Challenge
2
c
Dataset
# of possible models created from the Dataset
exceeds two trillion
# of possible models created from the
Dataset next year after it grows another 40% exceeds eight trillion
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Inadequate Response to Complexity
3
Quants
Conventional Analytical Approaches
y
x
Overfitting
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Clean Slate Requirements
4
Speed Defensibility Accuracy
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A Man-Machine Workflow
5
Algorithms + Compute
Group of Variables
Data Statistical Tests
Models Business Input
Business Validation
Variable Selection
Model Selection
Variable Identification
Model Identification
Machines
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Machine Intelligence
+ +
Topological Data Analysis
Scalable Compute
Machine Learning, Geometric + Statistical Algorithms
6
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Transforming Data to Insight
7
Fed Macro Variables
~300
Transforms ~900
Lagged ~2700
Distillable Model
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Correlate Variables with Business Performance
Correlation with Revenue
High Low
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Identify Potentially Explanatory Variables
9
Eurozone Interest Rates Corr AbsCorrEurozonei1MLibor 0.78 0.78UKi1MLibor 0.71 0.71Eurozonei5YrSwap 0.67 0.67EurozoneUnemployment -0.66 0.6620-Bond GO Index_Lag_1 0.62 0.62UKGB10Yr 0.51 0.51
Gro
up
A
A
Macro Growth Corr AbsCorrEurozoneGDP_Index 0.66 0.66UKGDP_Index 0.59 0.59USUnemployment -0.57 0.57UKHousing_Lag_2 0.47 0.47G
rou
p B
B
Emerging Risk Corr AbsCorrASIAHangseng -0.67 0.67MexicoFxrate -0.51 0.51EMEAMXEMEA_Lag_2 0.49 0.49UKFxrate -0.48 0.48G
rou
p C
C
Funding Stress Corr AbsCorrTED 0.85 0.85LIBOR less OIS 0.76 0.76LIBOR_Less_FED 0.67 0.67Eurozonei1MLibor_delta -0.34 0.34G
rou
p E
E
Credit Spreads Corr AbsCorrUSCDS_US10YR_BBB_pctChange 0.70 0.70USCDXnonIG_pctChange 0.70 0.70USCDS_US10YR_A_pctChange 0.68 0.68USCDS_US25YR_BBB_pctChange 0.65 0.65USCDXIG_pctChange 0.58 0.58
Gro
up
D
D
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Business Selects Variables
10
A
Eurozone Interest Rates Corr AbsCorrEurozonei1MLibor 0.78 0.78UKi1MLibor 0.71 0.71Eurozonei5YrSwap 0.67 0.67EurozoneUnemployment -0.66 0.6620-Bond GO Index_Lag_1 0.62 0.62UKGB10Yr 0.51 0.51
Gro
up
A
B Macro Growth Corr AbsCorrEurozoneGDP_Index 0.66 0.66UKGDP_Index 0.59 0.59USUnemployment -0.57 0.57UKHousing_Lag_2 0.47 0.47G
rou
p B
E
Funding Stress Corr AbsCorrTED 0.85 0.85LIBOR less OIS 0.76 0.76LIBOR_Less_FED 0.67 0.67Eurozonei1MLibor_delta -0.34 0.34G
rou
p E
DCredit Spreads Corr AbsCorrUSCDS_US10YR_BBB_pctChange 0.70 0.70USCDXnonIG_pctChange 0.70 0.70USCDS_US10YR_A_pctChange 0.68 0.68USCDS_US25YR_BBB_pctChange 0.65 0.65USCDXIG_pctChange 0.58 0.58
Gro
up
D
Eurozone Interest Rates Corr AbsCorrEurozonei1MLibor 0.78 0.78UKi1MLibor 0.71 0.71Eurozonei5YrSwap 0.67 0.67EurozoneUnemployment -0.66 0.6620-Bond GO Index_Lag_1 0.62 0.62UKGB10Yr 0.51 0.51
Gro
up
A
Macro Growth Corr AbsCorrEurozoneGDP_Index 0.66 0.66UKGDP_Index 0.59 0.59USUnemployment -0.57 0.57UKHousing_Lag_2 0.47 0.47G
rou
p B
Credit Spreads Corr AbsCorrUSCDS_US10YR_BBB_pctChange 0.70 0.70USCDXnonIG_pctChange 0.70 0.70USCDS_US10YR_A_pctChange 0.68 0.68USCDS_US25YR_BBB_pctChange 0.65 0.65USCDXIG_pctChange 0.58 0.58
Gro
up
D
Funding Stress Corr AbsCorrTED 0.85 0.85LIBOR less OIS 0.76 0.76LIBOR_Less_FED 0.67 0.67Eurozonei1MLibor_delta -0.34 0.34G
rou
p E
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Generate Permutation Group of Models
11
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Select for Empirical Validity
12
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Business Selects Final Model
13
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A Man-Machine Workflow
14
Algorithms + Compute
Group of Variables
Data Statistical Tests
Models Business Input
Business Validation
Variable Selection
Model Selection
Variable Identification
Model Identification
Machines
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