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Capturing Financial markets to apply Deep Reinforcement Learning

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  • Souradeep Chakraborty

Abstract

In this paper we explore the usage of deep reinforcement learning algorithms to automatically generate consistently profitable, robust, uncorrelated trading signals in any general financial market. In order to do this, we present a novel Markov decision process (MDP) model to capture the financial trading markets. We review and propose various modifications to existing approaches and explore different techniques like the usage of technical indicators, to succinctly capture the market dynamics to model the markets. We then go on to use deep reinforcement learning to enable the agent (the algorithm) to learn how to take profitable trades in any market on its own, while suggesting various methodology changes and leveraging the unique representation of the FMDP (financial MDP) to tackle the primary challenges faced in similar works. Through our experimentation results, we go on to show that our model could be easily extended to two very different financial markets and generates a positively robust performance in all conducted experiments.

Suggested Citation

  • Souradeep Chakraborty, 2019. "Capturing Financial markets to apply Deep Reinforcement Learning," Papers 1907.04373, arXiv.org, revised Dec 2019.
  • Handle: RePEc:arx:papers:1907.04373
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    References listed on IDEAS

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    1. Albert Shiryaev & Zuoquan Xu & Xun Yu Zhou, 2008. "Thou shalt buy and hold," Quantitative Finance, Taylor & Francis Journals, vol. 8(8), pages 765-776.
    2. Tianjun Zhang & Shuang Song & Shugang Li & Li Ma & Shaobo Pan & Liyun Han, 2019. "Research on Gas Concentration Prediction Models Based on LSTM Multidimensional Time Series," Energies, MDPI, vol. 12(1), pages 1-15, January.
    3. Albert Shiryaev & Zuoquan Xu & Xun Yu Zhou, 2008. "Response to comment on 'Thou shalt buy and hold'," Quantitative Finance, Taylor & Francis Journals, vol. 8(8), pages 761-762.
    4. Zhipeng Liang & Hao Chen & Junhao Zhu & Kangkang Jiang & Yanran Li, 2018. "Adversarial Deep Reinforcement Learning in Portfolio Management," Papers 1808.09940, arXiv.org, revised Nov 2018.
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    Cited by:

    1. Yuling Huang & Kai Cui & Yunlin Song & Zongren Chen, 2023. "A Multi-Scaling Reinforcement Learning Trading System Based on Multi-Scaling Convolutional Neural Networks," Mathematics, MDPI, vol. 11(11), pages 1-19, May.
    2. Eric Benhamou & David Saltiel & Sandrine Ungari & Abhishek Mukhopadhyay, 2020. "Bridging the gap between Markowitz planning and deep reinforcement learning," Papers 2010.09108, arXiv.org.
    3. Taylan Kabbani & Ekrem Duman, 2022. "Deep Reinforcement Learning Approach for Trading Automation in The Stock Market," Papers 2208.07165, arXiv.org.
    4. Longbing Cao, 2021. "AI in Finance: Challenges, Techniques and Opportunities," Papers 2107.09051, arXiv.org.
    5. Ricardo Cuervo, 2023. "Predictive AI for SME and Large Enterprise Financial Performance Management," Papers 2311.05840, arXiv.org.
    6. Adrian Millea, 2021. "Deep Reinforcement Learning for Trading—A Critical Survey," Data, MDPI, vol. 6(11), pages 1-25, November.

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