Counterattack starts with controlling probability

One afternoon, sunlight flooded the offices of the Statistics Department at the University of California, Berkeley.

Li Hao walked into Professor Hall's laboratory.

They agreed to discuss a latest paper on quantitative investment today, and also talk about further plans for doctoral research.

"Li, I've been researching the core issues of quantitative investing lately and thought you might be interested."

Professor Hall pointed to a stack of documents on the table with a smile on his face.

"There are many controversies regarding current quantitative investment strategies, such as model overfitting, adaptability issues in market dynamics, and how to better handle data sparsity and complexity."

Li Hao pulled up a chair and sat down. He flipped through some materials and frowned slightly. "Professor, are you trying to improve these problems in traditional quantitative investing? Especially in adapting to market dynamics?"

"That's right," Hall nodded. "Currently, the core of many quantitative strategies relies on historical data, but the market changes rapidly, and the effectiveness of the model often deteriorates quickly. I wonder if we can find a more adaptive model or a dynamically adjusted strategy?"

"Interesting," Li Hao smiled slightly, a hint of interest flashing in his eyes. "But Professor, if traditional quantitative strategies don't introduce more intelligent technology, relying solely on mathematical models and historical data is indeed somewhat limited."

"what do you mean?"

Professor Hall obviously understood the profound meaning of Li Hao's words.

“Combined with AI algorithms.”

Li Hao put down the information, leaned forward slightly, and there was a hint of excitement in his tone.

"If we can combine deep learning and reinforcement learning to build a dynamic and adaptive quantitative model, it will not only be able to capture market changes in real time, but also autonomously optimize investment strategies."

Professor Hall listened and nodded slightly. "Indeed, AI's capabilities in data processing and pattern recognition can make up for the shortcomings of traditional quantitative models. But do you think such a model can actually be implemented?"

"Yes, Professor."

Li Hao said confidently.

"We can try to combine two aspects: first, analysis of market behavior patterns, such as the impact of investor sentiment and group behavior on market prices; and second, the algorithm's self-optimization capabilities, such as dynamically adjusting weights and decisions through reinforcement learning. Most importantly, this kind of research not only has academic value but also great potential for commercialization."

Professor Hall pondered for a moment, then smiled. "Li, I knew you would bring some unique ideas. Integrating AI algorithms is indeed a promising approach, which brings me to a question. What do you think if you make this the core project of your doctoral research?"

Li Hao was slightly stunned, then showed an interested expression: "Take this as a doctoral project? Professor, do you mean not just staying in theory, but also combining it with actual market verification?"

"That's right," Professor Hall said encouragingly. "You have excellent market experience, which will give your research greater depth."

"Furthermore, if we can achieve a breakthrough in this area, the future impact will be very broad. As you know, the capital market has always had an urgent need for more intelligent investment strategies."

Li Hao nodded, and a series of possible research directions emerged in his mind.

"Professor, this topic is indeed very attractive. However, if we want to produce truly meaningful results, I hope that the research focus will not only be on the algorithmic model itself, but also on integrating it with real-world scenarios. For example, how to adapt the model to the particularities of different market environments and how to address the common 'over-optimization' problem in existing quantitative models."

"Very good," Professor Hall smiled with satisfaction. "Your ideas are very constructive. The introduction of AI algorithms can indeed solve many problems, but if we want to achieve commercialization, we also need to focus on the interpretability and stability of the models. We can start with these two aspects."

Li Hao picked up the notebook on the table and took notes as he said, "Professor, I have a few preliminary ideas. For example, we could try to design a multi-layered decision-making system. The first layer uses traditional quantitative strategies to capture basic market trends. The second layer uses AI algorithms to dynamically adjust strategy weights. The third layer performs risk control and handles abnormal situations."

"That sounds very comprehensive," Professor Hall nodded. "But the technical implementation will be very complex. Does that put a bit of pressure on you?"

"The greater the challenge, the greater the significance." Li Hao smiled. "Professor, if we can make this system work, it will not only be a contribution to academia, but also a revolution in market practice."

Professor Hall looked at Li Hao with satisfaction, his tone tinged with appreciation. "Li, you've shown me a very rare ability—the perfect combination of theory and practice. If you're willing, I will fully support you in completing this project."

Li Hao nodded and said, "Thank you, Professor. Now that we've made the decision, let's work together to promote the innovation of quantitative investing."

"Business and academia have never been opposing ends," Li Hao said. "They are just two sides of the same coin, and I will make it turn faster."

"Professor, the research direction you mentioned is actually similar to what a company I work for in China is trying."

Li Hao paused and looked up at Hall.

"This company is called NovaStrategies. Although it hasn't gone public yet, it was founded by me and my team, and its main focus is intelligent investment strategies."

Hall put down his pen with interest and crossed his arms over his chest. "NovaStrategies? The name sounds like an investment consulting company."

“To be precise, it is more like an intelligent investment research platform.”

Li Hao explained.

"We hope to use AI technology to empower investment decision-making, but we're currently primarily focused on data collection and strategy generation. Simply put, we're trying to provide investors with more accurate market forecasts and investment advice by analyzing massive amounts of data and combining it with AI. However, we've been facing several challenges."

"For example?" Hall raised his eyebrows and motioned Li Hao to continue.

Li Hao said slowly, "First, there's the issue of model adaptability. The domestic market fluctuates frequently, and quantitative strategies often become ineffective within a short period of time. This is the biggest obstacle we're facing right now."

"Well, market adaptability is indeed the biggest problem in quantitative investment." Hall nodded.

"Secondly, there's the issue of personalized investment strategies," Li Hao continued. "There are many different types of investors in the market, and their different risk preferences and return expectations all influence their strategy choices. We've tried to dynamically adjust strategy parameters through models, but the results haven't been ideal."

Hall asked with interest, "It sounds like you're already exploring the integration of AI and quantitative investing. How's the progress so far?"

Li Hao gave a wry smile and said, "To be honest, we're still in the exploratory stage. Our model can make predictions to a certain extent, but due to the lack of sufficient academic support and verification, the commercialization effect is not stable."

"That's why I'm interested in your research. If you can combine your doctoral research with solving these theoretical problems, the commercialization of NovaStrategies will be much smoother."

Li Hao's tone was filled with anticipation: "Professor, if we can use our doctoral research time to perfect the core theories in this field, or even design a dynamic and adaptive AI quantitative framework, it will not only be an academic breakthrough, but also a major boost for NovaStrategies."

Hall stroked his chin thoughtfully. "You mean, perfecting Nova's technological foundation through academic research, then pushing it toward commercialization and even eventually going public?"

"That's right," Li Hao said confidently. "Nova's market positioning itself has great potential, but due to technological and market uncertainties, it has been unable to achieve rapid development. If we can translate theoretical research into practical results, we can not only solve Nova's core problems, but also provide a new approach for the entire field of quantitative investment."

Hall nodded, a flicker of admiration in his eyes. "This idea is bold, but also very valuable. If it can be realized, it will not only be a breakthrough in academia, but also a revolution in the investment industry."

Li Hao took the opportunity to add, "Professor, I think this research can be approached from three aspects."

"First, how to use AI to dynamically adjust models and improve market adaptability; second, how to make models more explainable so that investors can trust and understand the logic of the strategy; and finally, how to achieve large-scale application through commercialization and provide customized services for different markets and users."

Hall nodded with satisfaction. "It sounds like you already have a clear idea. Then, I think this topic is very suitable for your doctoral research. If you need resources or support, I will do my best to help you."

"Thank you, Professor," Li Hao said earnestly. "With your support, I have more confidence in this research."

Coming out of Hall's office, Li Hao stood on the Berkeley lawn, gazing into the distance, and the image of the NovaStrategies team busy in China emerged in his mind.

He knew that this company was the result of years of hard work by him and his partners, and now, he finally had the opportunity to leverage the opportunity of his doctoral research to push it from the exploration stage to true commercialization.

"NovaStrategies will definitely have its own stage in the future." Li Hao said to himself.

……

Li Hao's life seemed to have just become a little more stable.

The direction of my doctoral research was clear, and the prospects of NovaStrategies also began to become clear.

But he didn't expect that a new storm would quietly emerge.

That day, Professor Hall called Li Hao to his office and handed him a report.

The first page of the document has the words "Cross-border capital flows and global market stability" written in bold bold letters.

"Li, this is a bigger problem we might face next," Professor Hall said solemnly. "Do you remember what Godma Capital did earlier? Things are happening in the international capital market today that are far more complex and secretive than that."

Li Hao opened the report and frowned at the data and charts inside.

The report shows that international capital has taken advantage of regulatory loopholes in emerging markets during its global flows, creating waves of speculative frenzy.

The flow of funds between different countries can both push up stock prices and cause the market to collapse in an instant.

Many emerging economies have suffered huge losses as a result, and even triggered the hidden dangers of financial crisis.

"These data look like organized manipulation." Li Hao said in a deep voice, and his mind quickly thought of Godma Capital's methods.