Seeing Around Corners with Data

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Seeing Around Corners with Data

 

The 2010 Flash Crash is a perfect example of the disastrous effects of the unintended circumstances of Big Data and use of data analytics to perform tasks human are unable or no longer willing to do. 

Traders and investors far removed from algorithmic trading lost thousands if not millions of dollars in a matter of minutes because of unknown triggers that sent the Dow plummeting 600 points. 

Precisely because of these challenges a number of financial engineers are seeking to find ways to anticipate systemic risks in the economy before they happen.   The complexity of algorithmic trading and the interrelationships across global economies and markets will require a better understanding of the cascading effects of these systems.

Andrew Lo, a professor at Sloan Business School and director of MIT’s Laboratory for Financial Engineering, kicked off his talk, called “Measuring and Managing the Complexity of the Financial System,” by showing two charts that neatly illustrate the complexity and interdependency of the current financial system.

“The first shows relationships between various major financial institutions roughly 20 years ago:”

“The second shows the same relationships just 10 years later:”