2022/12/11 by Xiaodong Li, Pangjing Wu, Li, Xiaodong +5 · 1 citation
Decision Sciences · Economics, Econometrics and Finance · #Artificial Intelligence (cs.AI) #Artificial intelligence #Complex Systems and Time Series Analysis #Computer science #Economics #FOS: Computer and information sciences #FOS: Economics and business #Finance #Financial Markets and Investment Strategies #Machine Learning (cs.LG) #Market liquidity #Market maker #Reinforcement learning #Statistical Finance (q-fin.ST) #Stock Market Forecasting Methods #Stock market #Trading and Market Microstructure (q-fin.TR) #Volume-weighted average price
paper · pdf · doi:10.48550/arxiv.2212.14670
published in arXiv (Cornell University) (Cornell University)
openalex publication_date 2022/12/11 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/04
Designing an intelligent volume-weighted average price (VWAP) strategy is a critical concern for brokers, since traditional rule-based strategies are relatively static that cannot achieve a lower transaction cost in a dynamic market. Many studies have tried to minimize the cost via reinforcement learning, but there are bottlenecks in improvement, especially for long-duration strategies such as the VWAP strategy. To address this issue, we propose a deep learning and hierarchical reinforcement learning jointed architecture termed Macro-Meta-Micro Trader (M3T) to capture market patterns and execute orders from different temporal scales. The Macro Trader first allocates a parent order into tranches based on volume profiles as the traditional VWAP strategy does, but a long short-term memory neural network is used to improve the forecasting accuracy. Then the Meta Trader selects a short-term subgoal appropriate to instant liquidity within each tranche to form a mini-tranche. The Micro Trader consequently extracts the instant market state and fulfils the subgoal with the lowest transaction cost. Our experiments over stocks listed on the Shanghai stock exchange demonstrate that our approach outperforms baselines in terms of VWAP slippage, with an average cost saving of 1.16 base points compared to the optimal baseline.