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Reinforcement Learning Portfolio Manager Framework with Monte Carlo Simulation

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  • Jungyu Ahn
  • Sungwoo Park
  • Jiwoon Kim
  • Ju-hong Lee

Abstract

Asset allocation using reinforcement learning has advantages such as flexibility in goal setting and utilization of various information. However, existing asset allocation methods do not consider the following viewpoints in solving the asset allocation problem. First, State design without considering portfolio management and financial market characteristics. Second, Model Overfitting. Third, Model training design without considering the statistical structure of financial time series data. To solve the problem of the existing asset allocation method using reinforcement learning, we propose a new reinforcement learning asset allocation method. First, the state of the portfolio managed by the model is considered as the state of the reinforcement learning agent. Second, Monte Carlo simulation data are used to increase training data complexity to prevent model overfitting. These data can have different patterns, which can increase the complexity of the data. Third, Monte Carlo simulation data are created considering various statistical structures of financial markets. We define the statistical structure of the financial market as the correlation matrix of the assets constituting the financial market. We show experimentally that our method outperforms the benchmark at several test intervals.

Suggested Citation

  • Jungyu Ahn & Sungwoo Park & Jiwoon Kim & Ju-hong Lee, 2022. "Reinforcement Learning Portfolio Manager Framework with Monte Carlo Simulation," Papers 2207.02458, arXiv.org.
  • Handle: RePEc:arx:papers:2207.02458
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    References listed on IDEAS

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    1. Eric Benhamou & David Saltiel & Jean-Jacques Ohana & Jamal Atif, 2020. "Detecting and adapting to crisis pattern with context based Deep Reinforcement Learning," Papers 2009.07200, arXiv.org, revised Nov 2020.
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