This Article 
 Bibliographic References 
 Add to: 
Artificial Intelligence and Financial Services
June 1991 (vol. 3 no. 2)
pp. 137-148

The author surveys key requirements and specific design techniques for artificial intelligence (AI) applications in the financial services industry. After discussing some of the fundamental challenges which the financial services industry presents for decision technology, the motivations for the use of AI are related to a number of typical applications, which are broadly categorized into suitable development and delivery environments and generic domain utilities required from shells or customized systems for that industry. Markets and trades are then shown to be well described in terms of knowledge representation and data structures, by object-oriented features embedded into logic programming environments. Conflict resolution strategies, preference aggregation and revealed beliefs are studied. A formal analysis of investment decision criteria is given. An example from currency risk management exemplifies this area. Intelligent information screens are presented to stress the need for knowledge-based techniques in financial information retrieval.

[1] J. Dean,Capital Budgeting. New York: Columbia Univ. Press, 1951.
[2] W. Fairley and H. D. Jacoby, "Investment analysis using the probability distribution of the internal rates of return,"Management Sci., vol. 21, no. 12, pp. 1428-1437, Aug. 1975.
[3] W.H. Jean, "On multiple rates of return,"J. Finance, vol. 23, pp. 187-191, 1968.
[4] L. F. Pau, "Investment planning w.r.t. to conflicting criteria: Relation to the internal rate of return," Res. Rep. 7/1975, IMSOR, Technical Univ. of Denmark, Lyngby, Sept. 1975.
[5] R.C. Shank and C. Riesbek, Eds.,Inside Computer Understanding. Hillsdale, NJ: Erlbaum, 1981.
[6] E. Rich,Artificial Intelligence. New York: McGraw-Hill, 1983.
[7] R. H. Bonczek, C. W. Holsapple, and A. B. Whinston,Foundations of Decision Support Systems. New York: Academic, 1981.
[8] C. W. Holsapple and A. B. Whinston,Manager's Guide to Expert Systems Using Guru. Homewood, IL: Dow Jones-Irwin, 1986.
[9] R. Wilenski,Planning and Understanding. Reading, MA: Addison-Wesley, 1983.
[10] Spicer and Oppenheim Guide to Understanding Financial Statements Around the World. London, England: Wiley, (ISBN: 04718-50789-X) 1989.
[11] W. H. Wagner, Ed.,The Complete Guide to Securities Transactions. London, England: Wiley, 1989.
[12] J. C. van Horne,Financial Management and Policy. Englewood Cliffs, NJ: Prentice-Hall, 1971.
[13] H. P. Young, "A note on preference aggregation,"Econometrica, vol. 42, no. 5, pp. 1129-1131, Nov. 1974.
[14] K. J. Arrow and M. Kurz,Public Investment, The Rate of Return and Optimal Fiscal Policy. Baltimore, MD: John Hopkins Univ. Press, 1971.
[15] J. K. Whitaker, "The Schumpeterian stationary state revisited,"Rev. Econom. Statist., pp. 389-391, 1971.
[16] P. A. Samuelson, "Paradoxes of Schumpeter's zero interest rate,"Rev. Econom. Statist., pp. 391-392, 1971.
[17] J. A. Schumpeter,The Theory of Economic Development. Cambridge, MA: Harvard University Press, 1934.
[18] J.A. Ohlson, The theory of financial markets and information. North Holland, Amsterdam, 1987 (ISBN: 0444-01161-7).
[19] C. Hu, "An evaluation of online database selection by a gate-way system with AI," Ph.D. dissertation, Univ. Illinois at Urbana-Champaign, 1987.
[20] M. Binbasioglu, "Knowledge based modelling support for linear programming," Ph.D. dissertation, New York Univ. School of Business Administration, 1986.
[21] L. F. Pau and C. Gianotti,Economic and Financial Knowledge based Processing. Heidelberg, Germany: Springer-Verlag, 1990.
[22] R.M. Miller, Markets as logic programs, inArtificial Intelligence in Economics and Management. Amsterdam: The Netherlands, 1986.
[23] L. F. Pau, Ed.,Artificial Intelligence in Economics and Management. Amsterdam, The Netherlands: North-Holland, 1986.
[24] K. Arrow,Social Choice and Individual Values, 2nd ed. New York, Wiley, 1963.
[25] H. Sonnenschein, "An axiomatic characterization of the price mechanism,"Econometrica, vol. 42, pp. 425-433, May 1974.
[26] D. R. Woodwell,Automating Your Financial Portofolio. Homewood, IL: Dow-Jones Irwin, 1983.
[27] A. Bathory,The Analysis of Credit: Foundations and Development of Corporate Credit Assessment. New York: McGraw-Hill, 1987.
[28] J. W. Coupland and N. Jackson, Ed.,Expert Systems in Finance Bibliography, IEE, London, 1988.
[29] D. Ince, "Financial and business applications of artificial intelligence," Information technology Briefings, London, 1988.
[30] L. F. Pau, "Applications of artificial intelligence in banking, financial services and economics," inExpert Systems in Banking, Finance and Economics. Amsterdam, The Netherlands: North Holland, 1988, ch. 1 (survey).
[31] L.F. Pau, J. Motiwalla, Y.H. Pao, and Y. Teh, Eds.,Expert Systems in Banking, Finance and Economics. Amsterdam, The Netherlands: North-Holland, 1989.
[32] Financial trading systems, Yearbook, IBC Technical services, Weybridge, Surrey, UK, 1988.
[33] G. Glarke,Expert Systems in the City. London, England: IBC Financial Books, 1988.
[34] Special Issue on Financial Applications,IEEE Expert, vol. 2, no. 3, Fall 1987.
[35] B. Humpert and P. Holley, "Expert systems in finance planning,"Expert Syst. J., vol. 5, no. 2, pp. 78-100, May 1988.
[36] G. I. Doukidis, F. Land, and G. Miller,Knowledge Based Management Support Systems. Ellis Harwood, 1989.
[37] L. F. Pau, "Technical analysis of price evolutions by syntactic pattern recognition," inProc. IFAC 1989 Symp. Dynamic Modelling Contr. Nat. Econom.Elmsford, NY: Pergamon, 1989, pp. 49-56.
[38] L. F. Pau, "Reasoning procedures in knowledge based systems for economics and management," inEncyclopedia of Computer Science and Technology, Vol. 24, A. Kent, Ed. New York: Marcel Dekker, 1991.
[39] L. F. Pau, "Artificial intelligence industry and its application in finance and portofolio management,"Security Analyst J. (Japan)(in Japanese), vol. 26, no. 12, pp. 28-41, Dec. 1988.
[40] L. F. Pau, "Inference of functional economic model relations from natural language analysis," inArtificial Intelligence in Economics and Management. Amsterdam, The Netherlands: North Holland, 1986.
[41] T. Alexander, "Why computers cannot outthink the experts,"Fortune, pp. 99-108, Aug. 20, 1984.
[42] J. Stansfield, "COMEX: A commodities support system," inProc. IJCAI-77, 1977, vol. 1, p. 109.
[43] A. E. Roycroft, "ACCI," inResearch and Development in Expert Systems, M. A. Bramer, Ed. Cambridge, MA: Cambridge Univ. Press, 1985, pp. 127-139.
[44] A. Bonarini, "Man machine interaction and inferential architecture for financial planning," inProc. ESPRIT'85, G. P. Katz, Ed., North Holland, 1986.
[45] Expert Systems in Banking and Securities, OVUM Ltd. London, 1988.
[46] A.R. Blair, R. Nachtmann, and J.E. Olson, "Forecasting foreign exchange rates: An expert judgment approach,"Soc. Econom. Planning Sci., vol. 21, no. 6, pp. 363-369, 1987.
[47] J. Behan, "Case Study: The Security Pacific Automation company, Expert systems in financial institutions," Instit. for Int. Res., New York, Sept. 1987.
[48] J. Behan and K. Lecot,Overview of Financial Applications of Expert Systems, Security Pacific, 1987.
[49] M. Dulieu and A. Fish, "Artificial intelligence in the dealer/computer interface," inProc. BankAI'87, Swift Int. Conf., Brussels, Belgium, May 1987.
[50] M. Firlej, "Tactical dealer information system: Dilemmas of using valuable knowledge," inProc. KBS'87, Online Publications, 1987.
[51] B. Iwasieczko et al., "Expert systems in financial analysis" inArtificial Intelligence in Economics and Management. Amsterdam, The Netherlands, 1986.
[52] D. Krutchen, "An expert financial portofolio management advisory system," inProc. Second Int. Expert Syst Conf., Learned Information, 1986.
[53] N. I. Lubich, "The application of artificial intelligence in the financial services industries," inProc. Third Australian Conf Appl. Expert Syst., Sydney, May 1987.
[54] G. Norris, "A knowledge based system for investment appraisal," inKnowledge based Systems'86, Online, July 1986.
[55] R. Reiter, "FX: A foreign exchange expert advisory system," inProc. Second Int. Expert Syst. Conf., Learned Information, 1986.
[56] K. Shap, Ed.,Artificial Intelligence in Financial Trading. Intermarket, Feb. 1987.
[57] J. Andren, "Future issues in implementing expert systems, Expert Systems in Financial Institutions," Instit. for Int. Res., New York, Sept. 1987.
[58] S. Cook, "Knowledge representation for financial expert systems," Presented at Banking Appl. and Artif. Intell.--SWIFTInt. Conf., Brussels, Belgium, May 1987.
[59] Les systémes experts en France, La lettre de l'intelligence artificielle, no. 38, pp. 8-12, May 1988.
[60] W. Reitman, "The financial advisor and the operations advisor," inProc. 1st Int. Symp. AI ES, Berlin, AMK, May 1987, pp. 12-22.
[61] Shpilberg, et al., "Exper Tax: An expert system for corporate tax planning,"Expert Syst., vol. 3, no. 3, p. 136, July 1986.
[62] L. Slahor, "AI in banking: intelligent workstations or mainframes," inProc. IEEE COMPEURO'87, Hamburg, May 1987, Cat. IEEE-CH- 2417-4/87, 851.
[63] R. Duda,et al., "Syntel: Using a functional language for financial risk assessment,"IEEE Expert, Fall 1987.
[64] P. Klahr, "The Authorizer's Assistant: A large financial expert system application," inProc. Third Australian Conf. Appl. Expert Syst., Sydney, Australia, May 1987.
[65] E. Marmier, "An overview of artificial intelligence activities at Credit Suisse and the Swiss brokerage convention prototype," Presentation at Banking Appl. Artif. Intell. SWIFT Int. Conf., Brussels, Belgium, May 1987.
[66] P. Makowski, "Credit scoring branches out,"Credit Management J., pp. 26-31, Mar. 1987.
[67] N. I. Lubich, "Artificial intelligence and financial services,"J. Management Bank Administration, vol. 62, no. 8, pp. 40-41, Aug. 1986.
[68] D.A. Lewin, "The next generation of dealer support systems," inProc. 1985 Int. Conf. Computes in City, On Line Conf., London, Nov. 19-21, 1985, pp. 71-79.
[69] H. Braun and I. S. Chandler, "Predicting stock market behavior through rule induction,"J. Decision Sci., vol. 18, no. 3, pp. 415-429, Summer 1987.
[70] T. Rizzo and K. Strauss, "Quotron used Windows to develop new market analysis tools for real-time data,"Microsoft Syst. J., vol. 4, no. 1, pp. 1-9, Jan. 1989.
[71] N. J. Belkin and W. B. Croft, "Retrieval techniques,"Annu. Rev. Inform. Sci. Technol., vol. 22, pp. 109-145, 1987.
[72] G. Biswas et al., "Knowledge assisted document retrieval, Parts I&II,"J. Amer. Soc. for Inform. Sci., vol. 38, pp. 83-96, 97-110, 1987.
[73] R. Davies, Ed.,Intelligent Information Systems. Chichester, Ellis Horwood, 1986.
[74] E. H. Sibley, "Using a relational system on Wall Street,"Commun. ACM, vol. 32, no. 8, pp. 988-993, Aug. 1989.

Index Terms:
conflict resolution strategies; financial services; specific design techniques; artificial intelligence; decision technology; delivery environments; generic domain utilities; customized systems; knowledge representation; data structures; object-oriented features; logic programming environments; preference aggregation; revealed beliefs; formal analysis; investment decision criteria; currency risk management; knowledge-based techniques; financial information retrieval; data structures; decision support systems; financial data processing; knowledge based systems; knowledge representation
L.F. Pau, "Artificial Intelligence and Financial Services," IEEE Transactions on Knowledge and Data Engineering, vol. 3, no. 2, pp. 137-148, June 1991, doi:10.1109/69.87994
Usage of this product signifies your acceptance of the Terms of Use.