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A simple learning agent interacting with an agent-based market model

Matthew Dicks, Andrew Paskaramoorthy and Tim Gebbie

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Abstract: We consider the learning dynamics of a single reinforcement learning optimal execution trading agent when it interacts with an event driven agent-based financial market model. Trading takes place asynchronously through a matching engine in event time. The optimal execution agent is considered at different levels of initial order-sizes and differently sized state spaces. The resulting impact on the agent-based model and market are considered using a calibration approach that explores changes in the empirical stylised facts and price impact curves. Convergence, volume trajectory and action trace plots are used to visualise the learning dynamics. Here the smaller state space agents had the number of states they visited converge much faster than the larger state space agents, and they were able to start learning to trade intuitively using the spread and volume states. We find that the moments of the model are robust to the impact of the learning agents except for the Hurst exponent, which was lowered by the introduction of strategic order-splitting. The introduction of the learning agent preserves the shape of the price impact curves but can reduce the trade-sign auto-correlations when their trading volumes increase.

Date: 2022-08, Revised 2023-11
New Economics Papers: this item is included in nep-cmp, nep-hme and nep-mst
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Published in Physica A: Statistical Mechanics and its Applications 633 (2024) 129363

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