Black swans are thought to be extremely rare events, and on most occasions, with highly negative consequences. These are usually difficult to predict beforehand but can be foreseen even if there is no historical data detailing similar situations.
While black swans occur in various industries and situations, some examples include health-related matters such as the COVID-19 pandemic, environmental issues – droughts, flash floods, and politically-related issues. As seen with recent World events, unforeseen and unpredictable events can overthrow any preparation and risk-aversion tactics in no time.
Taking all of the above into account, we have to conclude that black swans, unfortunately, do exist.
Now with these thoughts in mind, this is where a reliable and advanced software platform is needed – a solution that includes risk modelling, extreme value modelling, simulation modelling, and synthetic data generation. All these methods have their own functions but are tied together by a program or platform that can assist in better deciphering these usually unpredictable events.
Quantifying uncertainty and managing risk has always been a mainstay of the financial world but the financial crisis of 2008 catapulted risk management software to the fore. The pressure is on for risk management software to keep financial service providers at least one step ahead of catastrophe. But there is a problem – traditional risk models are built with a view on modelling and predicting “typical” scenarios, relying on extrapolation of previously observed patterns and trends. Such approaches struggle to adapt to dynamic, fast varying environments. Moreover, they often fail to capture unusual, extreme features and outcomes, some of which may have never been observed in the past.
Fortunately, an innovative method designed to resolve these shortcomings is within reach, and the first leap has already been made by the team of 4-Xtra Technologies. Interestingly, the new modelling technique originated as a response to an environmental crisis caused by air pollution. It is well documented that poor air quality in modern cities is creating increasing health problems for citizens around the world. This was the genesis of a postgraduate research project entitled “Extreme Value Modelling to Study Roadside Air Pollution Episodes“ at the University of Leeds.
Over the past ten years, the 4-Xtra Technologies team has been working towards the ultimate goal, which is to provide a Software-as-a-Service (SaaS) solution to the industries that may need this the most, including financial institutions, environmental identities, health and science, and more. Specific to the financial service sector, the program will allow banks and other financial institutions to benefit from the model’s ability to forecast extreme events across several use cases. These include portfolio optimisation, and trading of any number of asset classes, from securities to foreign exchange, and therefore enhance their risk management decision-making processes and ultimately improve their sustainability and profitability.
The model becomes automatically better trained with each run of the algorithm. Should the definition of an extreme of interest change (e.g., due to a fresh dataset or a new regulatory standard), there is no need to recalibrate or retrain the model — due to a clever mathematical design the estimator simply recalculates the model parameters estimated earlier.
An invaluable tool tied to 4-Xtra’s model is the generation of data that can be used, and in the case of black swans, where actual data is virtually close to nil, Synthetic Data is necessary. This type of data is known as annotated information that is generated by simulations to take the place of real-world data.
Predicting these black swans can be tricky but with the proper tools, this feat becomes easier to manage. With the technological advancements in the field of artificial intelligence and deep learning, as seen with the 4-Xtra platform. The Software-as-a-Service (SaaS) format that the 4-Xtra Technologies team has developed provides the necessary foresight and preparations to augment an organisation’s current risk management and decision-making capabilities.
As the 4-Xtra platform emerges as one of the first SaaS platforms able to forecast the likelihood of an extreme event occurring, here is a summary of the benefits that clients can expect when working with the team and the platform:
- Reduced Risk – Accurately predicts multivariate extreme values in nonstationary time series.
- Scalability – Machine Learning automatically adjusts to threshold change as the program is being used
- Speed & Efficiency – The engine runs unsupervised and does not require statistics to be reset or models to be rebuilt recalibrated for new scenarios or data changes
- Reduced Costs – Software-as-a-Service (SaaS) based solution that can process any computational load with no output slowdown, ensuring computational efficiency without compromising the quality of results
- Security – The program is hosted on the enterprise-grade Amazon Web Services (AWS) cloud infrastructure
Given all the factors tied to the possibility of black swans, it is vital to be as prepared as possible. 4-Xtra Technologies can assist you with that requirement.
To enquire or learn more about this service and program, please contact our team through email info@4-xtra.com and we commit to answering your enquiry within 3 business hours.
