A Risk-Aware Reinforcement Learning Reward for Financial Trading
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arXiv
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| Main Authors: | , , |
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| Format: | Preprint |
| Published: |
2025
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| _version_ | 1866915327093243904 |
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| author | Srivastava, Uditansh Aryan, Shivam Singh, Shaurya |
| author_facet | Srivastava, Uditansh Aryan, Shivam Singh, Shaurya |
| contents | We propose a novel composite reward function for reinforcement learning in financial trading that balances return and risk using four differentiable terms: annualized return downside risk differential return and the Treynor ratio
Unlike single metric objectives for example the Sharpe ratio our formulation is modular and parameterized by weights w1 w2 w3 and w4 enabling practitioners to encode diverse investor preferences
We tune these weights via grid search to target specific risk return profiles
We derive closed form gradients for each term to facilitate gradient based training and analyze key theoretical properties including monotonicity boundedness and modularity
This framework offers a general blueprint for building robust multi objective reward functions in complex trading environments and can be extended with additional risk measures or adaptive weighting |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2506_04358 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | A Risk-Aware Reinforcement Learning Reward for Financial Trading Srivastava, Uditansh Aryan, Shivam Singh, Shaurya Machine Learning We propose a novel composite reward function for reinforcement learning in financial trading that balances return and risk using four differentiable terms: annualized return downside risk differential return and the Treynor ratio Unlike single metric objectives for example the Sharpe ratio our formulation is modular and parameterized by weights w1 w2 w3 and w4 enabling practitioners to encode diverse investor preferences We tune these weights via grid search to target specific risk return profiles We derive closed form gradients for each term to facilitate gradient based training and analyze key theoretical properties including monotonicity boundedness and modularity This framework offers a general blueprint for building robust multi objective reward functions in complex trading environments and can be extended with additional risk measures or adaptive weighting |
| title | A Risk-Aware Reinforcement Learning Reward for Financial Trading |
| topic | Machine Learning |
| url | https://arxiv.org/abs/2506.04358 |