STLGJan 19

Beyond Visual Realism: Toward Reliable Financial Time Series Generation

arXiv:2601.12990v11 citations
Originality Highly original
AI Analysis

This addresses the gap between superficial realism and practical usability in financial generative modeling for quantitative finance applications.

The paper tackles the problem that existing generative models for financial time series produce data that look realistic but fail in trading backtests, and introduces SFAG which incorporates stylized facts as constraints to generate synthetic data that supports robust momentum strategy performance.

Generative models for financial time series often create data that look realistic and even reproduce stylized facts such as fat tails or volatility clustering. However, these apparent successes break down under trading backtests: models like GANs or WGAN-GP frequently collapse, yielding extreme and unrealistic results that make the synthetic data unusable in practice. We identify the root cause in the neglect of financial asymmetry and rare tail events, which strongly affect market risk but are often overlooked by objectives focusing on distribution matching. To address this, we introduce the Stylized Facts Alignment GAN (SFAG), which converts key stylized facts into differentiable structural constraints and jointly optimizes them with adversarial loss. This multi-constraint design ensures that generated series remain aligned with market dynamics not only in plots but also in backtesting. Experiments on the Shanghai Composite Index (2004--2024) show that while baseline GANs produce unstable and implausible trading outcomes, SFAG generates synthetic data that preserve stylized facts and support robust momentum strategy performance. Our results highlight that structure-preserving objectives are essential to bridge the gap between superficial realism and practical usability in financial generative modeling.

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