At Fintech's Frontier

Emerging financial technologies are disrupting the concepts of money, ownership, payments, and security in the digital economy, and Illinois Institute of Technology’s College of Computing is at the forefront of harnessing these innovations.

Through research, education, and mentorship, College of Computing faculty and students are pushing Fintech’s boundaries.

The College of Computing is home to some of the nation’s top fintech researchers. Matthew Dixon, associate professor of applied mathematics, was named 2022’s Buy-Side Quant of the Year by Risk.net, along with his research partner, Igor Halperin, vice president at Fidelity Investments’ Artificial Intelligence Asset Management Center of Excellence. Their research applies machine learning techniques to optimize retirement planning and other goal-based wealth management.

Dixon and Halperin developed “G-learning,” a probabilistic extension of Q-learning, which is a common reinforcement learning algorithm. The pair first began collaborating on a textbook, Machine Learning in Finance: From Theory to Practice, and they continued to improve G-learning after the book was published.

“We both had misgivings about deep Q-learning for many financial applications, and [we] had faced quite a bit of pushback making our views public on this, which motivated us to pursue it further,” Dixon says. “The particular application of optimal consumption is an important one for the wealth management industry.”

Machine learning tools and techniques have been used in other fields of finance such as derivatives hedging and risk management, but not in the area of retirement planning— specifically when deciding how to invest and how quickly those savings should be spent.

The retirement planning industry traditionally has been a conservative area of finance. Part of the challenge was taking machine learning tools and techniques and translating them into the language and financial modeling framework that allow practitioners to connect the benefits of machine learning to wealth management.

Dixon says the research could have far-reaching applications in financial planning—from when to buy a house, budgeting for college tuition, choosing life insurance plans, and tax planning.

“The possibilities are frightening, and there are clear ethical boundaries that must be effective, given access to your health data, your social media data, your credit card data, and more,” Dixon says.

Other College of Computing fintech leaders include Igor Cialenco, professor of applied mathematics, whose contributions to the field earned him a term as chair of the Society for Industrial and Applied Mathematics (SIAM) Activity Group on Financial Mathematics and Engineering. Cialenco was elected to the two-year post by his peers in the financial engineering community to provide leadership and to create an intellectual forum for SIAM members who are interested in mathematical finance. Other duties include developing and overseeing its programs and initiatives, as well as organizing the biennial SIAM Conference on Financial Mathematics and Engineering in 2023.

Sergey Nadtochiy, associate professor of applied mathematics, received a CAREER award from the National Science Foundation to conduct fintech research, and Yong Zheng, assistant professor of information technology and management, has been working with industry partners on fintech research.

Chicago is home to some of the world’s largest financial institutions and trading firms, which creates a large local appetite for trained fintech professionals. Dixon says this proximity to industry leaders is the critical ingredient to build inroads for partnerships and collaboration in research and educational opportunities.

Zheng received a grant from Chicago-based fintech firm Morningstar. Zheng and his research team will collaborate with Morningstar to develop intelligent and effective solutions for financial portfolio optimization. A multi-objective optimization framework will be built considering expected returns, potential risks, and corresponding metrics in environmental, social, and governance standards. This framework will be realized through algorithm development, coding, and evaluations.

Zheng says establishing a relationship with Morningstar, which has a global reach, can open exciting new opportunities for Illinois Tech students to work on research projects or earn internships in a rapidly growing industry.

“The grant collaboration is expected to establish a long-term relationship with Morningstar, which results in not only future research collaborations, but also strengthens our data analytics and data science programs,” he says.

Illinois Tech students have conducted their own fintech research as well. Illinois Tech’s inaugural Grainger Innovation Prize in 2021 attracted a team of student researchers who developed a sustainable digital currency. Team GiGi (Green lightnInG coIn), advised by Ioan Raicu, associate professor of computer science, took the competition’s top prize with a goal of innovating a digital currency that is not only more energy efficient, but also competes in speed with other centralized payment processing approaches such as credit cards.

Gabriel Bryk (CS, 4th Year) says Team GiGi addresses these flaws in cryptocurrency by using larger blocks with smaller block times to increase transaction speed. Improvements in energy efficiency is achieved by using an improved proof-of-space algorithm to secure the digital currency, he says.

Illinois Tech is home to assets that complement the technical and mathematical skills needed to excel in fintech innovation, research, and education. These resources include Stuart School of Business and the Ed Kaplan Family Institute for Innovation and Tech Entrepreneurship, which provide the resources to develop entrepreneurial soft skills, including how to manage technology, build tech teams, develop a tech roadmap, pitch to investors, and cultivate effective communication skills.

It is natural that Illinois Tech has utilized these resources to develop a degree program that will teach new fintech leaders. The university launched its Master of Financial Technology this fall, which explores the tools and techniques that are pushing today’s data-driven economy. “The finance industry is simply moving too quickly— there is a global shortage of fintech talent,” says Dixon, who will serve as the fintech program’s director. “It’s difficult for companies to find strong technology students who understand finance. Additionally, there have been several recent billion dollar crypto and data science companies collapse due to financial illiteracy, including Terra’s UST and Zillow Markets.”

Dixon says he plans to differentiate Illinois Tech’s program by leaning on the mathematics behind finance, but also adding the tech elements of computer science and cybersecurity.

“Make no mistake: at its core, this is a hands-on program with a lot of coding and focus on basic financial data analysis,” Dixon says. “We do place an emphasis on math and statistics, as they not only help to understand how to build robust finance models and data-driven fintech products, but also verify that they are correct. All the top fintech employers need strong critical reasoning and problem-solving skills combined with mastery of financial technology.” ●