Daily Papers

Long-context multiple-choice question answering tasks require robust reasoning over extensive text sources. Since most of the pre-trained transformer models are restricted to processing only a few hundred words at a time, successful completion of such tasks often relies on the identification of evidence spans, such as sentences, that provide supporting evidence for selecting the correct answer. Prior research in this domain has predominantly utilized pre-trained dense retrieval models, given the absence of supervision to fine-tune the retrieval process. This paper proposes a novel method called Options Aware Dense Retrieval (OADR) to address these challenges. ORDA uses an innovative approach to fine-tuning retrieval by leveraging query-options embeddings, which aim to mimic the embeddings of the oracle query (i.e., the query paired with the correct answer) for enhanced identification of supporting evidence. Through experiments conducted on the QuALITY benchmark dataset, we demonstrate that our proposed model surpasses existing baselines in terms of performance and accuracy.

Question-Options Generation (QOG) is a task that involves generating a set of question-options pairs given context. This task has various applications, including fine-tuning large models, information retrieval, and automated multiple-choice question generation for education. In this paper, we develop QOG models using three different methods based on fine-tuning sequence-to-sequence language models (LMs). Experiments demonstrate that the end-to-end QOG model is computationally efficient and stable during both training and inference, outperforming other methods. Furthermore, our analysis indicates that our QOG models are competitive on the QOG task compared to the large language model Llama 3-8B.

Binary options trading is often marketed as a field where predictive models can generate consistent profits. However, the inherent randomness and stochastic nature of binary options make price movements highly unpredictable, posing significant challenges for any forecasting approach. This study demonstrates that machine learning algorithms struggle to outperform a simple baseline in predicting binary options movements. Using a dataset of EUR/USD currency pairs from 2021 to 2023, we tested multiple models, including Random Forest, Logistic Regression, Gradient Boosting, and k-Nearest Neighbors (kNN), both before and after hyperparameter optimization. Furthermore, several neural network architectures, including Multi-Layer Perceptrons (MLP) and a Long Short-Term Memory (LSTM) network, were evaluated under different training conditions. Despite these exhaustive efforts, none of the models surpassed the ZeroR baseline accuracy, highlighting the inherent randomness of binary options. These findings reinforce the notion that binary options lack predictable patterns, making them unsuitable for machine learning-based forecasting.

We present a novel reasoning approach called Flow-of-Options (FoO), designed to address intrinsic biases in Large Language Models (LLMs). FoO enables LLMs to systematically explore a diverse range of possibilities in their reasoning, as demonstrated by an FoO-based agentic system for autonomously solving Machine Learning tasks (AutoML). Our framework outperforms state-of-the-art baselines, achieving improvements of 38.2% - 69.2% on standard data science tasks, and 37.4% - 47.9% on therapeutic chemistry tasks. With an overall operation cost under $1 per task, our framework is well-suited for cost-sensitive applications. Beyond classification and regression, we illustrate the broader applicability of our FoO-based agentic system to tasks such as reinforcement learning and image generation. Our framework presents significant advancements compared to current state-of-the-art agentic systems for AutoML, due to the benefits of FoO in enforcing diversity in LLM solutions through compressed, explainable representations that also support long-term memory when combined with case-based reasoning.

Large language models often fail when answer options require combining atomic judgments under explicit logical operators, even when they judge the individual atoms correctly. We study compound options connected by AND, OR, and NEITHER/NOR, introducing a framework that decomposes each option into atomic answers and scores contrastive hypotheses about each one, so the model never sees a compound option. An operator-constrained integer linear program then composes the calibrated scores into a single prediction. We evaluate on LOGICAL-COMMONSENSEQA and introduce LOGICAL-SATA, a reading-comprehension benchmark derived from SATA-Bench. Our framework improves Macro-F1 from 48.3 to 77.0 on the human-validated LOGICAL-COMMONSENSEQA split and from 47.0 to 75.6 on LOGICAL-SATA, with the largest gains on NEITHER/NOR.

This paper examines the zero-shot ability of Large Language Models (LLMs) to detect multiple-choice questions with no correct answer, a crucial aspect of educational assessment quality. We explore this ability not only as a measure of subject matter knowledge but also as an indicator of critical thinking within LLMs. Our experiments, utilizing a range of LLMs on diverse questions, highlight the significant performance gap between questions with a single correct answer and those without. Llama-3.1-405B stands out by successfully identifying the lack of a valid answer in many instances. These findings suggest that LLMs should prioritize critical thinking over blind instruction following and caution against their use in educational settings where questions with incorrect answers might lead to inaccurate evaluations. This research sets a benchmark for assessing critical thinking in LLMs and emphasizes the need for ongoing model alignment to ensure genuine user comprehension and assistance.

In this work, we introduce amortizing perpetual options (AmPOs), a fungible variant of continuous-installment options suitable for exchange-based trading. Traditional installment options lapse when holders cease their payments, destroying fungibility across units of notional. AmPOs replace explicit installment payments and the need for lapsing logic with an implicit payment scheme via the decay of the claimable notional. This amortization ensures all units evolve identically, preserving fungibility. We demonstrate that AmPO valuation can be reduced to an equivalent vanilla perpetual American option on a dividend-paying asset. This enables analytical expressions for the exercise boundaries and risk-neutral valuations for calls and puts. These formulas and relations allow us to derive the Greeks and study comparative statics with respect to the amortization rate. Illustrative numerical case studies demonstrate how the amortization rate shapes option behavior and reveal the resulting tradeoffs in the effective volatility sensitivity.

We propose a deep hedging framework for index option portfolios, grounded in a realistic market simulator that captures the joint dynamics of S&P 500 returns and the full implied volatility surface. Our approach integrates surface-informed decisions with multiple hedging instruments and explicitly accounts for transaction costs. The hedging strategy also considers the variance risk premium embedded in the hedging instruments, enabling more informed and adaptive risk management. Tested on a historical out-of-sample set of straddles from 2020 to 2023, our method consistently outperforms traditional delta-gamma hedging strategies across a range of market conditions.

The rapid advancement of AI technology has led to widespread applications of agent systems across various domains. However, the need for detailed architecture design poses significant challenges in designing and operating these systems. This paper introduces a taxonomy focused on the architectures of foundation-model-based agents, addressing critical aspects such as functional capabilities and non-functional qualities. We also discuss the operations involved in both design-time and run-time phases, providing a comprehensive view of architectural design and operational characteristics. By unifying and detailing these classifications, our taxonomy aims to improve the design of foundation-model-based agents. Additionally, the paper establishes a decision model that guides critical design and runtime decisions, offering a structured approach to enhance the development of foundation-model-based agents. Our contributions include providing a structured architecture design option and guiding the development process of foundation-model-based agents, thereby addressing current fragmentation in the field.

We introduce a novel approach to options trading strategies using a highly scalable and data-driven machine learning algorithm. In contrast to traditional approaches that often require specifications of underlying market dynamics or assumptions on an option pricing model, our models depart fundamentally from the need for these prerequisites, directly learning non-trivial mappings from market data to optimal trading signals. Backtesting on more than a decade of option contracts for equities listed on the S&P 100, we demonstrate that deep learning models trained according to our end-to-end approach exhibit significant improvements in risk-adjusted performance over existing rules-based trading strategies. We find that incorporating turnover regularization into the models leads to further performance enhancements at prohibitively high levels of transaction costs.

Recent works have widely adopted large language model pretraining for source code, suggested source code-specific pretraining objectives and investigated the applicability of various Transformer-based language model architectures for source code. This work investigates another important aspect of such models, namely the effect of different subtokenization options, and aims at identifying most effective and length-efficient subtokenizations, taking into account code specifics. We propose subtokenziation that reduces average length by 17% without downstream performance drop, and show that a carefully chosen subtokenization may improve quality by 0.5-2%, possibly with some length increase.

Researchers have been using Neural Networks and other related machine-learning techniques to price options since the early 1990s. After three decades of improvements in machine learning techniques, computational processing power, cloud computing, and data availability, this paper is able to provide a comparison of using Google Cloud's AutoML Regressor, TensorFlow Neural Networks, and XGBoost Gradient Boosting Decision Trees for pricing European Options. All three types of models were able to outperform the Black Scholes Model in terms of mean absolute error. These results showcase the potential of using historical data from an option's underlying asset for pricing European options, especially when using machine learning algorithms that learn complex patterns that traditional parametric models do not take into account.

Selecting exploratory actions that generate a rich stream of experience for better learning is a fundamental challenge in reinforcement learning (RL). An approach to tackle this problem consists in selecting actions according to specific policies for an extended period of time, also known as options. A recent line of work to derive such exploratory options builds upon the eigenfunctions of the graph Laplacian. Importantly, until now these methods have been mostly limited to tabular domains where (1) the graph Laplacian matrix was either given or could be fully estimated, (2) performing eigendecomposition on this matrix was computationally tractable, and (3) value functions could be learned exactly. Additionally, these methods required a separate option discovery phase. These assumptions are fundamentally not scalable. In this paper we address these limitations and show how recent results for directly approximating the eigenfunctions of the Laplacian can be leveraged to truly scale up options-based exploration. To do so, we introduce a fully online deep RL algorithm for discovering Laplacian-based options and evaluate our approach on a variety of pixel-based tasks. We compare to several state-of-the-art exploration methods and show that our approach is effective, general, and especially promising in non-stationary settings.

In recent years, corpus-driven AI methods, such as Large Language Models (LLMs), have seen widespread use in education. While on the surface their abilities look promising for tasks ranging from generating assessment materials to simulating student performance, we should be aware of the subtle nuances of their frequentist nature that might be affecting their behaviour. In this work, we focus on the aspect of corpus frequency in the context of creating high-quality Multiple Choice Questions (MCQs), specifically asking: What if corpus prevalence were enough to identify the correct answer to an MCQ? We propose a computational method of assessing corpus prevalence of MCQ options in large text corpora leveraging textual embeddings using both expert- and machine-generated MCQ sets. The key finding, across three large question sets, is that correct answers, independently of the question stem, are significantly more available than incorrect options. Specifically, using Wikipedia as the retrieval corpus, we find that always selecting the most prevalent option leads to scores up to 9.0% above the random-guess baseline. We also find that MCQ distractors generated by LLMs often show similar patterns of prevalence compared to expert-created options, despite the LLMs' frequentist nature and their training on large collections of textual data. Moreover, we find that corpus prevalence does not necessarily correlate with how recognisable terms are to humans. This highlights the need to better understand how corpora are used in AI-driven methods for education, whether applied directly or indirectly via LLMs.

This paper studies the use of randomized neural networks for the estimation of exposure profiles and unilateral CVA of American options within a Monte Carlo framework. The analysis is carried out separately under both Black-Scholes and Heston dynamics, combining American option valuation, expected exposure and potential future exposure estimation, and unilateral CVA calculation with portfolio netting effects. The numerical experiment compares this approach with the classical Least-Squares Monte Carlo (LSM) used as a benchmark in both low-dimensional single-asset and high-dimensional multi-asset scenarios, and also includes a path convergence test and a sensitivity analysis. The results show that the randomized feedforward neural network approach preserves convergence to the LSM benchmark when it is extended from pricing to exposure and CVA estimation, while its main advantage appears in high-dimensional problems, where it scales more efficiently and leads to lower computational cost. These results support the use of randomized neural networks as a useful alternative for exposure and CVA estimation in high-dimensional American-style options.

Large language models (LLMs) often exhibit systematic preferences for certain answer choices when responding to multiple-choice questions-a behavior known as selection bias. This bias reduces the accuracy and reliability of LLM outputs, limiting their usefulness in decision-critical applications. While prior work has focused on adjusting model inputs or outputs to mitigate this issue, our work takes a fundamentally different approach by identifying and removing the internal sources of bias. We introduce two methods: Bias Node Pruning (BNP), which prunes parameters that contribute to selection bias, and Auxiliary Option Injection (AOI), which introduces an additional answer choice to reduce bias in both white-box and black-box settings. To address the shortcomings of existing evaluation metrics, we propose Choice Kullback-Leibler Divergence (CKLD), a new metric that captures distributional imbalances in model predictions. Experiments on three LLMs across multiple datasets demonstrate that our methods consistently improve answer accuracy while reducing selection bias, providing a robust solution for both open- and closed-source models.

We apply supervised deep neural networks (DNNs) for pricing and calibration of both vanilla and exotic options under both diffusion and pure jump processes with and without stochastic volatility. We train our neural network models under different number of layers, neurons per layer, and various different activation functions in order to find which combinations work better empirically. For training, we consider various different loss functions and optimization routines. We demonstrate that deep neural networks exponentially expedite option pricing compared to commonly used option pricing methods which consequently make calibration and parameter estimation super fast.

This paper explores the application of deep Q-learning to hedging at-the-money options on the S\&P~500 index. We develop an agent based on the Twin Delayed Deep Deterministic Policy Gradient (TD3) algorithm, trained to simulate hedging decisions without making explicit model assumptions on price dynamics. The agent was trained on historical intraday prices of S\&P~500 call options across years 2004--2024, using a single time series of six predictor variables: option price, underlying asset price, moneyness, time to maturity, realized volatility, and current hedge position. A walk-forward procedure was applied for training, which led to nearly 17~years of out-of-sample evaluation. The performance of the deep reinforcement learning (DRL) agent is benchmarked against the Black--Scholes delta-hedging strategy over the same period. We assess both approaches using metrics such as annualized return, volatility, information ratio, and Sharpe ratio. To test the models' adaptability, we performed simulations across varying market conditions and added constraints such as transaction costs and risk-awareness penalties. Our results show that the DRL agent can outperform traditional hedging methods, particularly in volatile or high-cost environments, highlighting its robustness and flexibility in practical trading contexts. While the agent consistently outperforms delta-hedging, its performance deteriorates when the risk-awareness parameter is higher. We also observed that the longer the time interval used for volatility estimation, the more stable the results.