Search Results for « Inverse Variance Reinforcement Learning »

<div>Traditional portfolio management methods can incorporate specific investor preferences but rely on accurate forecasts of asset returns and covariances. Reinforcement learning (RL) methods do not rely on these explicit forecasts and are better suited for multi-stage decision processes. To address limitations of the evaluated research, experiments were conducted on three markets in different economies with different overall trends. By incorporating specific investor preferences into our RL models’ reward functions, a more comprehensive comparison could be made to traditional methods in risk-return space. Transaction costs were also modelled more realistically by including nonlinear changes introduced by market volatility and trading volume. The results of this study suggest that there can be an advantage to using RL methods compared to traditional convex mean-variance optimisation methods under certain market conditions. Our RL models could significantly outperform traditional single-period optimisation (SPO) and multi-period optimisation (MPO) models in upward trending markets, but only up to specific risk limits. In sideways trending markets, the performance of SPO and MPO models can be closely matched by our RL models for the majority of the excess risk range tested. The specific market conditions under which these models could outperform each other highlight the importance of a more comprehensive comparison of Pareto optimal frontiers in risk-return space. These frontiers give investors a more granular view of which models might provide better performance for their specific risk tolerance or return targets.</div>

Traditional portfolio management methods can incorporate specific investor preferences but rely on accurate forecasts of asset returns and covariances. Reinforcement learning (RL) methods do not rely on these explicit forecasts and are better suited for multi-stage decision processes. To address limitations of the evaluated research, experiments were conducted on three markets in different economies with different overall trends. By incorporating specific investor preferences into our RL models’ reward functions, a more comprehensive comparison could be made to traditional methods in risk-return space. Transaction costs were also modelled more realistically by including nonlinear changes introduced by market volatility and trading volume. The results of this study suggest that there can be an advantage to using RL methods compared to traditional convex mean-variance optimisation methods under certain market conditions. Our RL models could significantly outperform traditional single-period optimisation (SPO) and multi-period optimisation (MPO) models in upward trending markets, but only up to specific risk limits. In sideways trending markets, the performance of SPO and MPO models can be closely matched by our RL models for the majority of the excess risk range tested. The specific market conditions under which these models could outperform each other highlight the importance of a more comprehensive comparison of Pareto optimal frontiers in risk-return space. These frontiers give investors a more granular view of which models might provide better performance for their specific risk tolerance or return targets.

Abstract Inverse reinforcement learning can recover reward functions from observed behavior, but interpreting those rewards remains a fundamental challenge for understanding intelligent behavior and decision-making. To address this challenge, we introduce a novel framework for reward interpretation that combines reward-function analysis, latent mode assignments, and short-history behavioral analysis to infer latent motivations and behavioral dynamics. As a proof-of-concept, we instantiated the framework using switching inverse reinforcement learning on a large-scale dataset of multi-agent social interactions. Our framework interpreted the learned latent modes as ‘cautious’ and ‘volatile’ motivational profiles, demonstrating that recovered reward functions can reveal distinct patterns of behavioral dynamics. More broadly, these findings suggest that the proposed framework provides a promising approach for reverse-engineering and interpreting latent rewards underlying intelligent behavior and decision-making.