Can we imitate stock price behavior to reinforcement learn option price?
Why this work is in the frame
A frame that forgets how it found something cannot be audited. These are the routes that admitted this work.
Bibliographic record
Abstract
This paper presents a framework of imitating the price behavior of the underlying stock for reinforcement learning option price. We use accessible features of the equities pricing data to construct a non-deterministic Markov decision process for modeling stock price behavior driven by principal investor’s decision making. However, low signal-to-noise ratio and instability that appear immanent in equity markets pose challenges to determine the state transition (price change) after executing an action (principal investor’s decision) as well as decide an action based on current state (spot price). In order to conquer these challenges, we resort to a Bayesian deep neural network for computing the predictive distribution of the state transition led by an action. Additionally, instead of exploring a state-action relationship to formulate a policy, we seek for an episode based visible-hidden state-action relationship to probabilistically imitate principal investor’s successive decision making. Our algorithm then maps imitative principal investor’s decisions to simulated stock price paths by a Bayesian deep neural network. Eventually the optimal option price is reinforcement learned through maximizing the cumulative risk-adjusted return of a dynamically hedged portfolio over simulated price paths of the underlying.
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Full frame distilled prediction
Teacher imitationNot calibrated prevalence, not ground truth. Human validation pending. Learned from the 10,348 direct Codex labels and 10,348 direct Gemma labels. Candidate is the union of thresholded teacher heads; consensus is their intersection. These outputs are machine_predicted_unvalidated and are not human labels or direct frontier model labels.
Codex and Gemma teacher scores by category
| Category | Codex | Gemma |
|---|---|---|
| Metaresearch | 0.010 | 0.013 |
| Meta-epidemiology (narrow) | 0.001 | 0.001 |
| Meta-epidemiology (broad) | 0.001 | 0.001 |
| Bibliometrics | 0.001 | 0.002 |
| Science and technology studies | 0.000 | 0.000 |
| Scholarly communication | 0.002 | 0.000 |
| Open science | 0.002 | 0.006 |
| Research integrity | 0.000 | 0.001 |
| Insufficient payload (model declined to judge) | 0.005 | 0.000 |
Machine scores (provisional)
The two teacher heads of the student model, read on this work. A score orders the frame for review; it never asserts a category, and the validation status ships verbatim with every row.
Baseline scores from an immature model (maturity gate not passed, 7 training rounds). Scores rank; they never assert a category.
score_only:v0-immature-baseline · verbatim from the scoring run: score_only means the number may rank works, and no category label ships from it