DeepTrader: A Deep Reinforcement Learning Approach for Risk-Return Balanced Portfolio Management with Market Conditions Embedding

Authors

  • Zhicheng Wang Shanghai JiaoTong University
  • Biwei Huang Carnegie Mellon University
  • Shikui Tu Shanghai Jiao Tong University
  • Kun Zhang Carnegie Mellon University
  • Lei Xu Shanghai Jiao Tong University

Keywords:

Economic/Financial

Abstract

Most existing reinforcement learning (RL)-based portfolio management models do not take into account the market conditions, which limits their performance in risk-return balancing. In this paper, we propose DeepTrader, a deep RL method to optimize the investment policy. In particular, to tackle the risk-return balancing problem, our model embeds macro market conditions as an indicator to dynamically adjust the proportion between long and short funds, to lower the risk of market fluctuations, with the negative maximum drawdown as the reward function. Additionally, the model involves a unit to evaluate individual assets, which learns dynamic patterns from historical data with the price rising rate as the reward function. Both temporal and spatial dependencies between assets are captured hierarchically by a specific type of graph structure. Particularly, we find that the estimated causal structure best captures the interrelationships between assets, compared to industry classification and correlation. The two units are complementary and integrated to generate a suitable portfolio which fits the market trend well and strikes a balance between return and risk effectively. Experiments on three well-known stock indexes demonstrate the superiority of DeepTrader in terms of risk-gain criteria.

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Published

2021-05-18

How to Cite

Wang, Z., Huang, B., Tu, S., Zhang, K., & Xu, L. (2021). DeepTrader: A Deep Reinforcement Learning Approach for Risk-Return Balanced Portfolio Management with Market Conditions Embedding. Proceedings of the AAAI Conference on Artificial Intelligence, 35(1), 643-650. Retrieved from https://ojs.aaai.org/index.php/AAAI/article/view/16144

Issue

Section

AAAI Technical Track on Application Domains