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Exploiting Risk-Aversion and Size-dependent fees in FX Trading with Fitted Natural Actor-Critic

Author

Listed:
  • Vito Alessandro Monaco
  • Antonio Riva
  • Luca Sabbioni
  • Lorenzo Bisi
  • Edoardo Vittori
  • Marco Pinciroli
  • Michele Trapletti
  • Marcello Restelli

Abstract

In recent years, the popularity of artificial intelligence has surged due to its widespread application in various fields. The financial sector has harnessed its advantages for multiple purposes, including the development of automated trading systems designed to interact autonomously with markets to pursue different aims. In this work, we focus on the possibility of recognizing and leveraging intraday price patterns in the Foreign Exchange market, known for its extensive liquidity and flexibility. Our approach involves the implementation of a Reinforcement Learning algorithm called Fitted Natural Actor-Critic. This algorithm allows the training of an agent capable of effectively trading by means of continuous actions, which enable the possibility of executing orders with variable trading sizes. This feature is instrumental to realistically model transaction costs, as they typically depend on the order size. Furthermore, it facilitates the integration of risk-averse approaches to induce the agent to adopt more conservative behavior. The proposed approaches have been empirically validated on EUR-USD historical data.

Suggested Citation

  • Vito Alessandro Monaco & Antonio Riva & Luca Sabbioni & Lorenzo Bisi & Edoardo Vittori & Marco Pinciroli & Michele Trapletti & Marcello Restelli, 2024. "Exploiting Risk-Aversion and Size-dependent fees in FX Trading with Fitted Natural Actor-Critic," Papers 2410.23294, arXiv.org.
    • Handle: RePEc:arx:papers:2410.23294
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    References listed on IDEAS

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    1. Nicole Bäuerle & Jonathan Ott, 2011. "Markov Decision Processes with Average-Value-at-Risk criteria," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 74(3), pages 361-379, December.
    2. Mark Kritzman & Yuanzhen Li, 2010. "Skulls, Financial Turbulence, and Risk Management," Financial Analysts Journal, Taylor & Francis Journals, vol. 66(5), pages 30-41, September.
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