Andrew Paskaramoorthy

Matthew Dicks, Andrew Paskaramoorthy, Tim Gebbie

We consider the learning dynamics of a single reinforcement learning optimal execution trading agent when it interacts with an event driven agent-based financial market model. Trading takes place asynchronously through a matching engine in event time. The optimal execution agent is considered at different levels of initial order-sizes and differently sized state spaces. The resulting impact on the agent-based model and market are considered using a calibration approach that explores changes in the empirical stylised facts and price impact curves. Convergence, volume trajectory and action trace plots are used to visualise the learning dynamics. Here the smaller state space agents had the number of states they visited converge much faster than the larger state space agents, and they were able to start learning to trade intuitively using the spread and volume states. We find that the moments of the model are robust to the impact of the learning agents except for the Hurst exponent, which was lowered by the introduction of strategic order-splitting. The introduction of the learning agent preserves the shape of the price impact curves but can reduce the trade-sign auto-correlations when their trading volumes increase.

Matthew Dicks, Andrew Paskaramoorthy, Tim Gebbie

We consider the dynamics and the interactions of multiple reinforcement learning optimal execution trading agents interacting with a reactive Agent-Based Model (ABM) of a financial market in event time. The model represents a market ecology with 3-trophic levels represented by: optimal execution learning agents, minimally intelligent liquidity takers, and fast electronic liquidity providers. The optimal execution agent classes include buying and selling agents that can either use a combination of limit orders and market orders, or only trade using market orders. The reward function explicitly balances trade execution slippage against the penalty of not executing the order timeously. This work demonstrates how multiple competing learning agents impact a minimally intelligent market simulation as functions of the number of agents, the size of agents' initial orders, and the state spaces used for learning. We use phase space plots to examine the dynamics of the ABM, when various specifications of learning agents are included. Further, we examine whether the inclusion of optimal execution agents that can learn is able to produce dynamics with the same complexity as empirical data. We find that the inclusion of optimal execution agents changes the stylised facts produced by ABM to conform more with empirical data, and are a necessary inclusion for ABMs investigating market micro-structure. However, including execution agents to chartist-fundamentalist-noise ABMs is insufficient to recover the complexity observed in empirical data.

Terence L. van Zyl, Matthew Woolway, Andrew Paskaramoorthy

Portfolio management is a multi-period multi-objective optimisation problem subject to a wide range of constraints. However, in practice, portfolio management is treated as a single-period problem partly due to the computationally burdensome hyper-parameter search procedure needed to construct a multi-period Pareto frontier. This study presents the \gls{ParDen-Sur} modelling framework to efficiently perform the required hyper-parameter search. \gls{ParDen-Sur} extends previous surrogate frameworks by including a reservoir sampling-based look-ahead mechanism for offspring generation in \glspl{EA} alongside the traditional acceptance sampling scheme. We evaluate this framework against, and in conjunction with, several seminal \gls{MO} \glspl{EA} on two datasets for both the single- and multi-period use cases. Our results show that \gls{ParDen-Sur} can speed up the exploration for optimal hyper-parameters by almost $2\times$ with a statistically significant improvement of the Pareto frontiers, across multiple \glspl{EA}, for both datasets and use cases.

Andrew Paskaramoorthy, Terence van Zyl, Tim Gebbie

The artificial segmentation of an investment management process into a workflow with silos of offline human operators can restrict silos from collectively and adaptively pursuing a unified optimal investment goal. To meet the investor's objectives, an online algorithm can provide an explicit incremental approach that makes sequential updates as data arrives at the process level. This is in stark contrast to offline (or batch) processes that are focused on making component level decisions prior to process level integration. Here we present and report results for an integrated, and online framework for algorithmic portfolio management. This article provides a workflow that can in-turn be embedded into a process level learning framework. The workflow can be enhanced to refine signal generation and asset-class evolution and definitions. Our results confirm that we can use our framework in conjunction with resampling methods to outperform naive market capitalisation benchmarks while making clear the extent of back-test over-fitting. We consider such an online update framework to be a crucial step towards developing intelligent portfolio selection algorithms that integrate financial theory, investor views, and data analysis with process-level learning.