Financial trading systems: Is recurrent reinforcement the via?
AbstractIn this paper we propose a financial trading system whose trading strategy is developed by means of an artificial neural network approach based on a learning algorithm of recurrent reinforcement type. In general terms, this kind of approach consists: first, in directly specifying a trading policy based on some predetermined investorâs measure of profitability; second, in directly setting the financial trading system while using it. In particular, with respect to the prominent literature, in this contribution: first, we take into account as measure of profitability the reciprocal of the returns weighted direction symmetry index instead of the wide-spread Sharpe ratio; second, we obtain the differential version of the measure of profitability we consider, and obtain all the related learning relationships; third, we propose a simple procedure for the management of drawdown-like phenomena; finally, we apply our financial trading approach to some of the most prominent assets of the Italian stock market.
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Bibliographic InfoPaper provided by Department of Applied Mathematics, Università Ca' Foscari Venezia in its series Working Papers with number 141.
Length: 17 pages
Date of creation: Oct 2006
Date of revision:
Financial trading system; recurrent reinforcement learning; no-hidden-layer perceptron model; returns weighted directional symmetry measure; gradient ascent technique; Italian stock market.;
Find related papers by JEL classification:
- C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
- 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
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-11-18 (All new papers)
- NEP-CMP-2006-11-18 (Computational Economics)
- NEP-MST-2006-11-18 (Market Microstructure)
- NEP-RMG-2006-11-18 (Risk Management)
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