Calibration-Induced Degeneracy: When an Expensive LLM Feature Receives Zero Weight
A. Mohanty · 2026
What this means for traders
Before paying for a sophisticated signal, check two things: that it can mechanically change the answer at all, and that it beats a trivially cheap alternative.
Abstract
A fully audit-trailed case study in which an LLM scores the market importance of daily news headlines, and that score is added to implied-volatility baselines to forecast next-day equity risk. Calibration assigned the feature a weight of exactly zero, making every augmented forecast mathematically identical to its baseline, after the full-history inference had already been purchased. A near-free control that merely counts headlines did improve variance forecasting. The paper prescribes a viability checkpoint, fit first, perturb second, acquire last, that detects a feature which cannot move the output before any inference is paid for.