FinXplore: An Adaptive Deep Reinforcement Learning Framework for Balancing and Discovering Investment Opportunities

Abstract

Portfolio optimization is essential for balancing risk and return in financial decision-making. Deep Reinforcement Learning (DRL) has stood out as a cutting-edge tool for portfolio optimization that learns dynamic asset allocation using trial-and-error interactions. However, most DRL-based methods are restricted to allocating assets within a pre-defined investment universe and overlook exploring new opportunities. This study introduces an investment landscape that integrates exploiting existing assets with exploring new investment opportunities in an extended universe. The proposed approach leverages two DRL agents and dynamically balances these objectives to adapt to evolving markets while enhancing portfolio performance. One agent allocates assets within the existing universe, while another assists in exploring new opportunities in the extended universe. The effciency of the proposed methodology is determined using two real-world market data sets. The experiments demonstrate the superiority of the suggested approach against the state-of-the-art portfolio strategies and baseline methods.