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Robot See, Robot Do: Imitation Reward for Noisy Financial Environments

Author

Listed:
  • Sven Goluv{z}a
  • Tomislav Kovav{c}evi'c
  • Stjepan Beguv{s}i'c
  • Zvonko Kostanjv{c}ar

Abstract

The sequential nature of decision-making in financial asset trading aligns naturally with the reinforcement learning (RL) framework, making RL a common approach in this domain. However, the low signal-to-noise ratio in financial markets results in noisy estimates of environment components, including the reward function, which hinders effective policy learning by RL agents. Given the critical importance of reward function design in RL problems, this paper introduces a novel and more robust reward function by leveraging imitation learning, where a trend labeling algorithm acts as an expert. We integrate imitation (expert's) feedback with reinforcement (agent's) feedback in a model-free RL algorithm, effectively embedding the imitation learning problem within the RL paradigm to handle the stochasticity of reward signals. Empirical results demonstrate that this novel approach improves financial performance metrics compared to traditional benchmarks and RL agents trained solely using reinforcement feedback.

Suggested Citation

  • Sven Goluv{z}a & Tomislav Kovav{c}evi'c & Stjepan Beguv{s}i'c & Zvonko Kostanjv{c}ar, 2024. "Robot See, Robot Do: Imitation Reward for Noisy Financial Environments," Papers 2411.08637, arXiv.org.
  • Handle: RePEc:arx:papers:2411.08637
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    1. Sven Goluv{z}a & Tomislav Kovav{c}evi'c & Tessa Bauman & Zvonko Kostanjv{c}ar, 2024. "Deep reinforcement learning with positional context for intraday trading," Papers 2406.08013, arXiv.org.
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