Regulations shift revenues from banks to Central Counterparties. Shall banks adopt a kind of "collaborative filtering algorithms"...successfully used by the online retail sector…to pitch new products to clients?
What's a collaborative filtering algorithm?
It's a method of making automated predictions about the interests of a user by collecting preferences from many users. If one shares a taste with others its more likely that she shares another taste too.
If you listen too much to main stream, you create mainstream
Collaborative filtering needs enough samples, it looks into the past…so, although collaborate filtering can claim to achieve good diversity and independence, it may work the other way around in unpredictable cases - if you listen too much to mainstream, you create mainstream.
Good for gadget buyers is not necessarily good for corporate treasurers
The traditional role of, say, a corporate treasury embraces core functions…corporate finance, cash management, liquidity planning and control, procurement of financial investments…and increasingly important: management of interest, currency and commodity risk…and marginal functions that are extremely company specific.
Senior management and board seek greater visibility to liquidity and risk exposures and better monitoring financial metrics on critical projects…this requires finding new ways to leverage treasury skills and technologies…maybe use things that are not in stock.
Without using algorithms, you can't understand values and risk and engineer new financial instruments. But the success of treasury departments may need also quantitative methods to validate the major instruments they need…far beyond collaborative filtering.
A treasurer's role may need to shift from being an asset guardian to a value creator…set the stage for successful investment and risk management, leverage technology and build quant finance skills.
It's one example how indispensable quant innovation can become...