An intelligent financial portfolio trading strategy using deep Q-learning
Min Kyu Sim and
Dong Gu Choi
Papers from arXiv.org
Portfolio traders strive to identify dynamic portfolio allocation schemes so that their total budgets are well allocated through the investment horizon. This study proposes a novel portfolio trading strategy in which an intelligent agent is trained to identify an optimal trading action by using an algorithm called deep Q-learning. This study formulates a portfolio trading process as a Markov decision process in which the agent can learn about the financial market environment, and it identifies a deep neural network structure as an approximation of the Q-function. To ensure applicability to real-world trading, we devise three novel techniques that are both reasonable and implementable. First, the agent's action space is modeled as a combinatorial action space of trading directions with prespecified trading sizes for each asset. Second, we introduce a mapping function that can replace an initially-determined action that may be infeasible with a feasible action that is reasonably close to the original, ideal action. Last, we introduce a technique by which an agent simulates all feasible actions in each state and learns about these experiences to derive a multi-asset trading strategy that best reflects financial data. To validate our approach, we conduct backtests for two representative portfolios and demonstrate superior results over the benchmark strategies.
New Economics Papers: this item is included in nep-big and nep-cmp
Date: 2019-07, Revised 2019-08
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