Deep Reinforcement Learning for Dynamic Portfolio Optimization in Financial Markets

Nitendra Kumar, Padmesh Tripathi (), K. K. Paroha, Priyanka Agarwal and Dhrubajyoti Bhowmik
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Nitendra Kumar: Amity University, Uttar Pradesh
Padmesh Tripathi: Amity University, Uttar Pradesh
K. K. Paroha: Gyan Ganga College of Technology
Priyanka Agarwal: Amity University, Uttar Pradesh
Dhrubajyoti Bhowmik: National Institute of Technology

A chapter in New Paradigms of Business Management in the Era of Analytics, Sustainability and Innovation, 2025, pp 249-268 from Springer

Abstract: Abstract Portfolio management has been a challenging task in the financial market for a long period. Several traditional and modern tools and techniques have been employed by researchers in this field in the last decades. Deep Reinforcement Learning (DRL) has been one of them which has produced excellent results for portfolio optimization. DRL offers a revolutionary approach to portfolio management by enabling dynamic, data-driven investment strategies. However, challenges such as sample efficiency, interpretability, and integration with existing systems hinder widespread adoption. This chapter explores these challenges and proposes future directions for DRL in portfolio management. Potential solutions like transfer learning and explainable artificial intelligence (XAI) have been discussed to improve sample efficiency and interpretability. Hybrid approaches that combine DRL with traditional methods and the development of robust risk management practices are explored. In addition, exciting future directions, including multi-agent learning, incorporating financial constraints and market microstructure, and the role of Explainable Reinforcement Learning (XRL) in socially responsible investing have also been explored. It has been observed that by addressing open questions concerning interpretability, ethical considerations, and regulatory frameworks, DRL can evolve into a powerful tool for investors, navigating complex markets and achieving their financial goals.

Keywords: Deep reinforcement learning; Explainable reinforcement learning; Portfolio management; Financial markets; Portfolio optimization (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-981-97-7030-4_16

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DOI: 10.1007/978-981-97-7030-4_16

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