Journal
PHYSICA A-STATISTICAL MECHANICS AND ITS APPLICATIONS
Volume 633, Issue -, Pages -Publisher
ELSEVIER
DOI: 10.1016/j.physa.2023.129363
Keywords
Strategic order-splitting; Reinforcement learning; Market simulation; Agent-based model
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In this study, we investigate the learning dynamics of a single reinforcement learning optimal execution trading agent when it interacts with an event-driven agent-based financial market model. The results show that the agents with smaller state spaces converge faster and are able to intuitively learn to trade using spread and volume states. The introduction of the learning agent has a robust impact on the moments of the model, except for the Hurst exponent, which decreases, and it can increase the micro-price volatility as trading volumes increase.
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 is 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. 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 and increase the micro-price volatility when the trading volumes increase.
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