Modeling Stock Order Flows and Learning Market-Making from Data

Stock markets employ specialized traders, market-makers, designed to provide liquidity and volume to the market by constantly supplying both supply and demand. In this paper, we demonstrate a novel method for modeling the market as a dynamic system and a reinforcement learning algorithm that learns profitable market-making strategies when run on this model. The sequence of buys and sells for a particular stock, the order flow, we model as an Input-Output Hidden Markov Model fit to historical data. When combined with the dynamics of the order book, this creates a highly non-linear and difficult dynamic system. Our reinforcement learning algorithm, based on likelihood ratios, is run on this partially-observable environment. We demonstrate learning results for two separate real stocks.

Interaction and Intelligent Behavior

We introduce basic behaviors as primitives for control and learning in situated, embodied agents interacting in complex domains. We propose methods for selecting, formally specifying, algorithmically implementing, empirically evaluating, and combining behaviors from a basic set. We also introduce a general methodology for automatically constructing higher--level behaviors by learning to select from this set. Based on a formulation of reinforcement learning using conditions, behaviors, and shaped reinforcement, out approach makes behavior selection learnable in noisy, uncertain environments with stochastic dynamics. All described ideas are validated with groups of up to 20 mobile robots performing safe--wandering, following, aggregation, dispersion, homing, flocking, foraging, and learning to forage.