Why financial modelling wasn't yet automatized?
How is possible that AI mastered chess by calculating in seconds 10120 games of chess and go with the best move but no one yet invented a software to put together a maximum of 10 math formulas and 3 different scenarios in Excel?
To put together the perfect financial model would be to perfectly predict the future.
I think there hasn’t been work to adjust assumptions and reliably automate multiple states of the world. Current excel/vba/r allow the best mix of modification and effectively manage valuation models.
so fkn true lmao
Likely a few reasons (but these are guesses)
1. Economics. If I'm going to spend months making an initial version of a software, I want to get paid for it. How much would banks be willing to pay for this?
2. I'm sure software exists to output formulas and format things together, but it's the inputs that really matter for financial models. AI wouldn't be great at tracking inputs for a few reasons, including needed a data set to train a model. Even Deep Learning models require quite a bit of data sets, usually for complex topics humans are still far better at learning.
3. You need to build in multi-tenancy into your model, meaning each bank's data are separated and not training a single model. I'm sure Goldman wouldn't want Citi essentially using their models to build out data sets, and vice versa. This gets expensive from an ML Training perspective, MLOps, and makes your software better for some companies. It'll only be as good as the inputs.
Also far more speculation here but I think IBs need Analysts. The ultimate skillset is truly sophisticated sales for an MD, and you need to work people up to that. I've never worked in IB so I can't really opine much here, but could be a contributing factor.
Because there is nothing automated about the process of a well built model. I'm constantly working on bespoke changes depending on the situation.
If every model was looking at the same same hammer and screwdriver factory with the same set of circumstances and outlook, then yeah you could easily automate it. This is not the case in the real world.
Hmmm. Tbh, almost everyone interested in finance and tech has built some version of this including myself.
You should DM me if you're interested. I know someone who's built a pretty good version. Imo as someone who worked in tech, it could honestly be packaged into a real software product. And he'd love to talk to people about to see if it's a tually useful
But to your question. It' because no one thinks there's a big enough of a market for it. Big banks probably already automated tools they use, smaller banks probably don't want to pay for some expensive software, and generally there are really bad tech practices at most banks where the cost of convincing them is just too damn high (I know this because I used to build B2B software products that get sold to banks).
Personally I think it could be a lowkey business pulling up to $50-$100mil (with a quarter dozen or so products) in revenue and managed by a team of 5-10 people. (I think the whole market be worth maybe a billion or so in revenue globally).
My version was a half baked version I built as a sophomore. But I know this 1 person who is actually passionate about it. His stuff seems pretty legit and he knows all the issues with his software like the back of his hand. Guy just need to talk to potential customers.
Edit: What you can say half a dozen but can't say quarter dozen? English isn't my first language.
Maybe you should pay more attention to what the other person is actually saying instead of nitpicking on words.
quarter dozen? you mean 3?
Thanks for making fun of me.
Who would've guessed... English isn't even my first language.
I hope you feel great about yourself mega WASP chad.
Sincerely,
An Immigrant kid
Because the MD wants to be able to make the model output whatever he wants it to output — and screaming at AI won’t work, but screaming at an analyst will.
If someone had an AI that could perfectly value the intrinsic value of companies and the timing of the markets, they would be the richest person in the world.
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