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STARR INSIGHTS: Artificial Intelligence (A.I.) is now impacting finance at the highest level.

by Antonio Ciarleglio

While we are all trying to assess how A.I. will shape the future, unbeknown to many of us, A.I. is actively shaping the world around us now.

A.I. has caught everyone’s attention, we have seen A.I. starting to penetrate deep into our organisational operations, with chief artificial intelligence officers, developing strategies to protect ourselves from any future threat posed by super-intelligent computers capable of thinking for themselves. A.I. technology is being used in and across the highest levels of government, medicine, defence and business.

One industry embracing A.I.’s power is finance. The Bond Buyer website recently reported that three of the top credit rating agencies now fully use A.I. in all their risk assessments. This may be one of the most suitable applications of the technology: performing a repetitive task in an area that is difficult for human brain operate in.

“A.I. is a strong fit for the industry. Great A.I. applications are found where you have expensive people doing repetitive, low-value tasks that computers can do faster and more precisely,” Thomas Ryan, head of municipal bond valuations at Thomson Reuters, was quoted as saying in the Bond Buyer article. “The A.I. we leverage analyses 350,000 news articles a day, from tens of thousands of local and national sources, and identifies material changes that can impact a specific CUSIP. We are able to immediately assess changes in each of the 65,000 obligors and their CUSIPs with more precision than ever before.”

It is not important how sophisticated your Google News searches are, because it is impossible for a single person or team of experts to can scan this volume of information. The Internet itself has become an obstacle, having grown to a size which makes it easy to hide critical information from prying eyes, but cannot hide from A.I.

The human brain cannot filter through millions of search results to find relevant information, unlike A.I. Search engines that uncover millions of results relevant to your query, but not all are specific to what you are actually searching for.

The financial industry has very specific information requirements. Consider Government and Corporate Bonds. At any one time, there are trillions of dollars, GB pounds, Euros, and Yen Bonds being traded and issued globally, in order to assess and monitor the myriad of factors that influence the risk assessments of all these bonds, a researcher would need the ability to identify issues at a granular level that do not surface with regular search results, e.g. a change in a government’s fiscal policy, a corporate merger, or fraudulent activities. Any of these issues could indicate that a government or corporation has a much higher default risk than previously assessed.

This function was previously done by teams of highly trained researchers. Now however, humans must cooperate with A.I., this partnership of Humans and A.I. means the work is completed correctly and efficiently.

This symbiotic relationship between humans and A.I. is also well documented. A 2016 White House report “Preparing for the Future of Artificial Intelligence” noted the following observation: “One example is in chess playing, where a weaker computer can often beat a stronger computer player, if the weaker computer is given a human teammate — this is true even though top computers are much stronger players than any human.”

The same report describes another example in medicine, where a human pathologist incorrectly diagnosed cancerous lymph nodes 3.5 percent of the time, whereas A.I. made incorrect diagnoses 7.5 percent of the time. When they combined their input, the error rate was reduced to just 0.5 percent.

The Financial Industry is almost ten years on from the global liquidity crisis. A crisis that was blamed in part on the inability to piece together business critical information about the reality of credit risk. A.I. can quickly uncover information regarding the health of the Financial Markets, which will make it almost impossible for any business critical information to be missed. And when A.I. is fully accepted and correctly implemented across the industry, the effect of A.I. could well be the end of the Bull and Bear cycles which plagues our modern economy.

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