Mark Vreijling and Thomas Dohmen
NORM is a financial service industry initiative supported by the European Union.
NORM aims to enhance market risk assessment metrics by using semantically analysed
news-based information. This will compensate for the inflexibility of existing models
with regard to strong market fluctuations or market instability and give more dynamic,
more reliable market risk estimation.
17.1 INTRODUCTION
In today’s chaotic financial climate, systems for predicting market behaviour and the
attitudes of financial professionals are under scrutiny. Current market risk assessment
characteristics disregard market information that is available from additional sources
like, for example, financial news. There are whole new possibilities for producing mean-
ingful market behaviour models by incorporating behavioural and quantitative finance,
using the latest techniques and powerful modelling tools. The prevailing market
environment can (to some extent) be captured by key innovative techniques of news
analytics that quantify news sentiments. The emergence and impact of such behavioural
finance is illustrated by the five Nobel Prizes for Economics awarded in this field in
recent years.
NORM sets out to improve current risk assessment practices by accurately identifying
significant changes in market conditions by using automatic semantic analysis of current
financial news streams. The targeted end result is a proof-of-concept application that
uses real-time financial news to calculate a more relevant and more reliable risk metric.
17.2 The problem of incomplete information in market risk assessment
The sole purpose of financial risk management is to identify or anticipate potential risks
before they occur, thereby possibly preventing companies from potential disasters or
minimizing their effects.
The Handbook of News Analytics in Finance Edited by L. Mitra and G. Mitra
#2011 John Wiley & Sons