Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2004.06985.html
   My bibliography  Save this paper

Extending Deep Reinforcement Learning Frameworks in Cryptocurrency Market Making

Author

Listed:
  • Jonathan Sadighian
Abstract
There has been a recent surge in interest in the application of artificial intelligence to automated trading. Reinforcement learning has been applied to single- and multi-instrument use cases, such as market making or portfolio management. This paper proposes a new approach to framing cryptocurrency market making as a reinforcement learning challenge by introducing an event-based environment wherein an event is defined as a change in price greater or less than a given threshold, as opposed to by tick or time-based events (e.g., every minute, hour, day, etc.). Two policy-based agents are trained to learn a market making trading strategy using eight days of training data and evaluate their performance using 30 days of testing data. Limit order book data recorded from Bitmex exchange is used to validate this approach, which demonstrates improved profit and stability compared to a time-based approach for both agents when using a simple multi-layer perceptron neural network for function approximation and seven different reward functions.

Suggested Citation

  • Jonathan Sadighian, 2020. "Extending Deep Reinforcement Learning Frameworks in Cryptocurrency Market Making," Papers 2004.06985, arXiv.org.
    • Handle: RePEc:arx:papers:2004.06985
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2004.06985
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Maxime Morariu-Patrichi & Mikko S. Pakkanen, 2018. "State-dependent Hawkes processes and their application to limit order book modelling," Papers 1809.08060, arXiv.org, revised Sep 2021.
    2. Maxime Morariu-Patrichi & Mikko Pakkanen, 2018. "State-dependent Hawkes processes and their application to limit order book modelling," CREATES Research Papers 2018-26, Department of Economics and Business Economics, Aarhus University.
    3. Avraam Tsantekidis & Nikolaos Passalis & Anastasios Tefas & Juho Kanniainen & Moncef Gabbouj & Alexandros Iosifidis, 2018. "Using Deep Learning for price prediction by exploiting stationary limit order book features," Papers 1810.09965, arXiv.org.
    4. James Wallbridge, 2020. "Transformers for Limit Order Books," Papers 2003.00130, arXiv.org.
    5. E. Bacry & J. F Muzy, 2013. "Hawkes model for price and trades high-frequency dynamics," Papers 1301.1135, arXiv.org.
    6. Yagna Patel, 2018. "Optimizing Market Making using Multi-Agent Reinforcement Learning," Papers 1812.10252, arXiv.org.
    7. David Silver & Aja Huang & Chris J. Maddison & Arthur Guez & Laurent Sifre & George van den Driessche & Julian Schrittwieser & Ioannis Antonoglou & Veda Panneershelvam & Marc Lanctot & Sander Dieleman, 2016. "Mastering the game of Go with deep neural networks and tree search," Nature, Nature, vol. 529(7587), pages 484-489, January.
    8. Thomas Spooner & John Fearnley & Rahul Savani & Andreas Koukorinis, 2018. "Market Making via Reinforcement Learning," Papers 1804.04216, arXiv.org.
    9. Volodymyr Mnih & Koray Kavukcuoglu & David Silver & Andrei A. Rusu & Joel Veness & Marc G. Bellemare & Alex Graves & Martin Riedmiller & Andreas K. Fidjeland & Georg Ostrovski & Stig Petersen & Charle, 2015. "Human-level control through deep reinforcement learning," Nature, Nature, vol. 518(7540), pages 529-533, February.
    10. Jonathan Sadighian, 2019. "Deep Reinforcement Learning in Cryptocurrency Market Making," Papers 1911.08647, arXiv.org.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bruno Gašperov & Stjepan Begušić & Petra Posedel Šimović & Zvonko Kostanjčar, 2021. "Reinforcement Learning Approaches to Optimal Market Making," Mathematics, MDPI, vol. 9(21), pages 1-22, October.
    2. Tristan Lim, 2022. "Predictive Crypto-Asset Automated Market Making Architecture for Decentralized Finance using Deep Reinforcement Learning," Papers 2211.01346, arXiv.org, revised Jan 2023.
    3. Adrian Millea, 2021. "Deep Reinforcement Learning for Trading—A Critical Survey," Data, MDPI, vol. 6(11), pages 1-25, November.
    4. Ali Raheman & Anton Kolonin & Alexey Glushchenko & Arseniy Fokin & Ikram Ansari, 2022. "Adaptive Multi-Strategy Market-Making Agent For Volatile Markets," Papers 2204.13265, arXiv.org.
    5. Zhou Fang & Haiqing Xu, 2023. "Market Making of Options via Reinforcement Learning," Papers 2307.01814, arXiv.org.
    6. Zhou Fang & Haiqing Xu, 2023. "Over-the-Counter Market Making via Reinforcement Learning," Papers 2307.01816, arXiv.org.
    7. Tristan Lim, 2024. "Predictive crypto-asset automated market maker architecture for decentralized finance using deep reinforcement learning," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 10(1), pages 1-29, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jonathan Sadighian, 2019. "Deep Reinforcement Learning in Cryptocurrency Market Making," Papers 1911.08647, arXiv.org.
    2. Bruno Gašperov & Stjepan Begušić & Petra Posedel Šimović & Zvonko Kostanjčar, 2021. "Reinforcement Learning Approaches to Optimal Market Making," Mathematics, MDPI, vol. 9(21), pages 1-22, October.
    3. Ben Hambly & Renyuan Xu & Huining Yang, 2021. "Recent Advances in Reinforcement Learning in Finance," Papers 2112.04553, arXiv.org, revised Feb 2023.
    4. Shuo Sun & Rundong Wang & Bo An, 2021. "Reinforcement Learning for Quantitative Trading," Papers 2109.13851, arXiv.org.
    5. Bruno Gav{s}perov & Zvonko Kostanjv{c}ar, 2022. "Deep Reinforcement Learning for Market Making Under a Hawkes Process-Based Limit Order Book Model," Papers 2207.09951, arXiv.org.
    6. Iwao Maeda & David deGraw & Michiharu Kitano & Hiroyasu Matsushima & Hiroki Sakaji & Kiyoshi Izumi & Atsuo Kato, 2020. "Deep Reinforcement Learning in Agent Based Financial Market Simulation," JRFM, MDPI, vol. 13(4), pages 1-17, April.
    7. Jiafa He & Cong Zheng & Can Yang, 2023. "Integrating Tick-level Data and Periodical Signal for High-frequency Market Making," Papers 2306.17179, arXiv.org.
    8. Yassine Chemingui & Adel Gastli & Omar Ellabban, 2020. "Reinforcement Learning-Based School Energy Management System," Energies, MDPI, vol. 13(23), pages 1-21, December.
    9. Peng Wu & Marcello Rambaldi & Jean-Franc{c}ois Muzy & Emmanuel Bacry, 2019. "Queue-reactive Hawkes models for the order flow," Papers 1901.08938, arXiv.org.
    10. Yuhong Wang & Lei Chen & Hong Zhou & Xu Zhou & Zongsheng Zheng & Qi Zeng & Li Jiang & Liang Lu, 2021. "Flexible Transmission Network Expansion Planning Based on DQN Algorithm," Energies, MDPI, vol. 14(7), pages 1-21, April.
    11. Ioane Muni Toke & Nakahiro Yoshida, 2020. "Marked point processes and intensity ratios for limit order book modeling," Papers 2001.08442, arXiv.org.
    12. Huang, Ruchen & He, Hongwen & Gao, Miaojue, 2023. "Training-efficient and cost-optimal energy management for fuel cell hybrid electric bus based on a novel distributed deep reinforcement learning framework," Applied Energy, Elsevier, vol. 346(C).
    13. Neha Soni & Enakshi Khular Sharma & Narotam Singh & Amita Kapoor, 2019. "Impact of Artificial Intelligence on Businesses: from Research, Innovation, Market Deployment to Future Shifts in Business Models," Papers 1905.02092, arXiv.org.
    14. Omar Al-Ani & Sanjoy Das, 2022. "Reinforcement Learning: Theory and Applications in HEMS," Energies, MDPI, vol. 15(17), pages 1-37, September.
    15. Taejong Joo & Hyunyoung Jun & Dongmin Shin, 2022. "Task Allocation in Human–Machine Manufacturing Systems Using Deep Reinforcement Learning," Sustainability, MDPI, vol. 14(4), pages 1-18, February.
    16. Hong Guo & Jianwu Lin & Fanlin Huang, 2023. "Market Making with Deep Reinforcement Learning from Limit Order Books," Papers 2305.15821, arXiv.org.
    17. Mahmoud Mahfouz & Tucker Balch & Manuela Veloso & Danilo Mandic, 2021. "Learning to Classify and Imitate Trading Agents in Continuous Double Auction Markets," Papers 2110.01325, arXiv.org, revised Oct 2021.
    18. Oleh Lukianykhin & Tetiana Bogodorova, 2021. "Voltage Control-Based Ancillary Service Using Deep Reinforcement Learning," Energies, MDPI, vol. 14(8), pages 1-22, April.
    19. Wu, Yuankai & Tan, Huachun & Peng, Jiankun & Zhang, Hailong & He, Hongwen, 2019. "Deep reinforcement learning of energy management with continuous control strategy and traffic information for a series-parallel plug-in hybrid electric bus," Applied Energy, Elsevier, vol. 247(C), pages 454-466.
    20. Michael Karpe & Jin Fang & Zhongyao Ma & Chen Wang, 2020. "Multi-Agent Reinforcement Learning in a Realistic Limit Order Book Market Simulation," Papers 2006.05574, arXiv.org, revised Sep 2020.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2004.06985. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.