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The Trustworthiness of AI Algorithms and the Simulator Bias in Trading

Author

Listed:
  • Alina Cornelia LUCHIAN

    (Bucharest University of Economic Studies, Bucharest, Romania)

  • Vasile STRAT

    (Bucharest University of Economic Studies, Bucharest, Romania)

Abstract

The application of AI technology is changing dramatically investment decisions in the financial and banking industry. Neural networks (NN) are a special type of machine learning algorithm employed in training trading robots. They might be associated with advanced analysis of the specific software simulators used fundamentally in algorithm training and testing to alleviate risk in the trading activities. Our research focuses on a couple of key aspects: a methodical literature review using Natural Language Processing (NLP) tools, to delve into major themes directing to the efforts of understanding of the role of algorithms and NN in trading and investment banking. We discovered that these technologies play a major role in reducing risk and effectively taking up the mission of forecasting market fluctuations and evolving shortly in automatic trading strategies. The paper examines the possibility of harnessing simulation tools utilised in the capital investments markets for practicing and examining algorithms as well as methods for reducing biases and enhancing decision-making process. The discoveries have revealed that NN rules can be efficient in attaining patterns in historical data while forecasting stock prices precisely. In terms of large applicability, this research emphasises the requirement for countering emotional and cognitive behaviours that may impact trading results, and it exposes the most effective types of NN for designing trading algorithms. An algorithmic framework for improving biases innated in a financial banking trading activities is recommended, to improve impartiality, risk management, and trading execution.

Suggested Citation

  • Alina Cornelia LUCHIAN & Vasile STRAT, 2024. "The Trustworthiness of AI Algorithms and the Simulator Bias in Trading," PROCEEDINGS OF THE INTERNATIONAL CONFERENCE ON ECONOMICS AND SOCIAL SCIENCES, Bucharest University of Economic Studies, Romania, vol. 6(1), pages 211-220, August.
  • Handle: RePEc:rom:conase:v:6:y:2024:i:1:p:211-220
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    More about this item

    Keywords

    risk management; trading algorithms; bias mitigation; trustworthiness.;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets

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