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Q-Learning-based financial trading systems with applications

Author

Listed:
  • Marco Corazza

    (Department of Economics, Ca� Foscari University of Venice; Advanced School of Economics in Venice.)

  • Francesco Bertoluzzo

    (Department of Economics, Ca� Foscari University of Venice.)

Abstract

The design of financial trading systems (FTSs) is a subject of high interest both for the academic environment and for the professional one due to the promises by machine learning methodologies. In this paper we consider the Reinforcement Learning-based policy evaluation approach known as Q-Learning algorithm (QLa). QLa is an algorithm which real-time optimizes its behavior in relation to the responses it gets from the environment in which it operates. In particular: first we introduce the essential aspects of QLa which are of interest for our purposes; second we present some original FTSs based on differently configured QLas; then we apply such FTSs to an artificial time series of daily stock prices and to six real ones from the Italian stock market belonging to the FTSE MIB basket. The results we achieve are generally satisfactory.

Suggested Citation

  • Marco Corazza & Francesco Bertoluzzo, 2014. "Q-Learning-based financial trading systems with applications," Working Papers 2014:15, Department of Economics, University of Venice "Ca' Foscari".
    • Handle: RePEc:ven:wpaper:2014:15
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    References listed on IDEAS

    as
    1. J. Doyne Farmer, 2002. "Market force, ecology and evolution," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 11(5), pages 895-953, November.
    2. Bekiros, Stelios D., 2010. "Heterogeneous trading strategies with adaptive fuzzy Actor-Critic reinforcement learning: A behavioral approach," Journal of Economic Dynamics and Control, Elsevier, vol. 34(6), pages 1153-1170, June.
    3. Francesco Bertoluzzo & Marco Corazza, 2006. "Financial trading systems: Is recurrent reinforcement the via?," Working Papers 141, Department of Applied Mathematics, Università Ca' Foscari Venezia.
    4. Xufre Casqueiro, Patricia & Rodrigues, Antonio J.L., 2006. "Neuro-dynamic trading methods," European Journal of Operational Research, Elsevier, vol. 175(3), pages 1400-1412, December.
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    Cited by:

    1. Xiao-Yang Liu & Hongyang Yang & Qian Chen & Runjia Zhang & Liuqing Yang & Bowen Xiao & Christina Dan Wang, 2020. "FinRL: A Deep Reinforcement Learning Library for Automated Stock Trading in Quantitative Finance," Papers 2011.09607, arXiv.org, revised Mar 2022.
    2. Taylan Kabbani & Ekrem Duman, 2022. "Deep Reinforcement Learning Approach for Trading Automation in The Stock Market," Papers 2208.07165, arXiv.org.
    3. Fischer, Thomas G., 2018. "Reinforcement learning in financial markets - a survey," FAU Discussion Papers in Economics 12/2018, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.

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    More about this item

    Keywords

    Financial trading system; Reinforcement Learning; Q-Learning algorithm; daily stock price time series; FTSE MIB basket.;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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