Risk-Aware Reinforcement Learning for Multi-Period Portfolio Selection

Winkel, David ; Strauß, Niklas ; Schubert, Matthias und Seidl, Thomas (2023): Risk-Aware Reinforcement Learning for Multi-Period Portfolio Selection. European Conference, ECML PKDD 2022, Grenoble, France, September 19–23, 2022. In: Machine Learning and Knowledge Discovery in Databases European Conference, ECML PKDD 2022, Grenoble, France, September 19–23, 2022, Proceedings, Vol. 13718 Cham: Springer. pp. 185-200

Abstract

The task of portfolio management is the selection of portfolio allocations for every single time step during an investment period while adjusting the risk-return profile of the portfolio to the investor’s individual level of risk preference. In practice, it can be hard for an investor to quantify his individual risk preference. As an alternative, approximating the risk-return Pareto front allows for the comparison of different optimized portfolio allocations and hence for the selection of the most suitable risk level. Furthermore, an approximation of the Pareto front allows the analysis of the overall risk sensitivity of various investment policies. In this paper, we propose a deep reinforcement learning (RL) based approach, in which a single meta agent generates optimized portfolio allocation policies for any level of risk preference in a given interval. Our method is more efficient than previous approaches, as it only requires training of a single agent for the full approximate risk-return Pareto front. Additionally, it is more stable in training and only requires per time step market risk estimations independent of the policy. Such risk control per time step is a common regulatory requirement for e.g., insurance companies. We benchmark our meta agent against other state-of-the-art risk-aware RL methods using a realistic environment based on real-world Nasdaq-100 data. Our evaluation shows that the proposed meta agent outperforms various benchmark approaches by generating strategies with better risk-return profiles.

• Item Type: Conference or Workshop Item (Paper)
• Faculties: Mathematics, Computer Science and Statistics > Computer Science
• Subjects: 000 Computer science, information and general works > 004 Data processing computer science
• ISBN: 978-3-031-26421-4 ; 978-3-031-26422-1
• Place of Publication: Cham
• Language: English