The Predictive Edge

CHAPTER 3Large Language Models: A Game Changer

Large language models (LLMs) are the most sophisticated form of artificial intelligence we have so far. The technology powers models like ChatGPT, allowing them to understand and generate nuanced, human‐like language and solve tasks like coding and following instructions. As LLMs become more advanced, their disruptive impact on quantitative analysis and algorithmic trading seems imminent. LLMs can analyze earnings reports, extract data, generate investment research notes, and even provide individualized stock recommendations tailored to investors' goals and risk tolerance. Understanding this technology will help you leverage and keep pace with AI's rapid progress.

This chapter explores the transformative role of large language models. The first section, natural language processing (NLP), lays the foundation by explaining how computers understand and process human language. It sets the stage for understanding the complexity of language tasks that LLMs manage to perform.

The second section, generative AI, expands on the capabilities of AI systems to create new, original content, a leap forward from traditional, rule‐based approaches. It illustrates the evolution from simple language processing to generating coherent and contextually relevant content.

Finally, the third section, LLMs, focuses on these sophisticated models at the forefront of NLP and generative AI. LLMs like GPT‐3 have revolutionized the field by demonstrating an unprecedented ...