Explainable post hoc portfolio management financial policy of a Deep Reinforcement Learning agent.
Financial portfolio management investment policies computed quantitatively by modern portfolio theory techniques like the Markowitz model rely on a set of assumptions that are not supported by data in high volatility markets such as the technological sector or cryptocurrencies. Hence, quantitative r...
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Public Library of Science (PLoS)
2025-01-01
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| Series: | PLoS ONE |
| Online Access: | https://doi.org/10.1371/journal.pone.0315528 |
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| author | Alejandra de-la-Rica-Escudero Eduardo C Garrido-Merchán María Coronado-Vaca |
| author_facet | Alejandra de-la-Rica-Escudero Eduardo C Garrido-Merchán María Coronado-Vaca |
| author_sort | Alejandra de-la-Rica-Escudero |
| collection | DOAJ |
| description | Financial portfolio management investment policies computed quantitatively by modern portfolio theory techniques like the Markowitz model rely on a set of assumptions that are not supported by data in high volatility markets such as the technological sector or cryptocurrencies. Hence, quantitative researchers are looking for alternative models to tackle this problem. Concretely, portfolio management (PM) is a problem that has been successfully addressed recently by Deep Reinforcement Learning (DRL) approaches. In particular, DRL algorithms train an agent by estimating the distribution of the expected reward of every action performed by an agent given any financial state in a simulator, also called gymnasium. However, these methods rely on Deep Neural Networks model to represent such a distribution, that although they are universal approximator models, capable of representing this distribution over time, they cannot explain its behaviour, given by a set of parameters that are not interpretable. Critically, financial investors policies require predictions to be interpretable, to assess whether they follow a reasonable behaviour, so DRL agents are not suited to follow a particular policy or explain their actions. In this work, driven by the motivation of making DRL explainable, we developed a novel Explainable DRL (XDRL) approach for PM, integrating the Proximal Policy Optimization (PPO) DRL algorithm with the model agnostic explainable machine learning techniques of feature importance, SHAP and LIME to enhance transparency in prediction time. By executing our methodology, we can interpret in prediction time the actions of the agent to assess whether they follow the requisites of an investment policy or to assess the risk of following the agent's suggestions. We empirically illustrate it by successfully identifying key features influencing investment decisions, which demonstrate the ability to explain the agent actions in prediction time. We propose the first explainable post hoc PM financial policy of a DRL agent. |
| format | Article |
| id | doaj-art-b4ea8877668e43ca9ee55f7969803944 |
| institution | DOAJ |
| issn | 1932-6203 |
| language | English |
| publishDate | 2025-01-01 |
| publisher | Public Library of Science (PLoS) |
| record_format | Article |
| series | PLoS ONE |
| spelling | doaj-art-b4ea8877668e43ca9ee55f79698039442025-08-20T03:11:54ZengPublic Library of Science (PLoS)PLoS ONE1932-62032025-01-01201e031552810.1371/journal.pone.0315528Explainable post hoc portfolio management financial policy of a Deep Reinforcement Learning agent.Alejandra de-la-Rica-EscuderoEduardo C Garrido-MerchánMaría Coronado-VacaFinancial portfolio management investment policies computed quantitatively by modern portfolio theory techniques like the Markowitz model rely on a set of assumptions that are not supported by data in high volatility markets such as the technological sector or cryptocurrencies. Hence, quantitative researchers are looking for alternative models to tackle this problem. Concretely, portfolio management (PM) is a problem that has been successfully addressed recently by Deep Reinforcement Learning (DRL) approaches. In particular, DRL algorithms train an agent by estimating the distribution of the expected reward of every action performed by an agent given any financial state in a simulator, also called gymnasium. However, these methods rely on Deep Neural Networks model to represent such a distribution, that although they are universal approximator models, capable of representing this distribution over time, they cannot explain its behaviour, given by a set of parameters that are not interpretable. Critically, financial investors policies require predictions to be interpretable, to assess whether they follow a reasonable behaviour, so DRL agents are not suited to follow a particular policy or explain their actions. In this work, driven by the motivation of making DRL explainable, we developed a novel Explainable DRL (XDRL) approach for PM, integrating the Proximal Policy Optimization (PPO) DRL algorithm with the model agnostic explainable machine learning techniques of feature importance, SHAP and LIME to enhance transparency in prediction time. By executing our methodology, we can interpret in prediction time the actions of the agent to assess whether they follow the requisites of an investment policy or to assess the risk of following the agent's suggestions. We empirically illustrate it by successfully identifying key features influencing investment decisions, which demonstrate the ability to explain the agent actions in prediction time. We propose the first explainable post hoc PM financial policy of a DRL agent.https://doi.org/10.1371/journal.pone.0315528 |
| spellingShingle | Alejandra de-la-Rica-Escudero Eduardo C Garrido-Merchán María Coronado-Vaca Explainable post hoc portfolio management financial policy of a Deep Reinforcement Learning agent. PLoS ONE |
| title | Explainable post hoc portfolio management financial policy of a Deep Reinforcement Learning agent. |
| title_full | Explainable post hoc portfolio management financial policy of a Deep Reinforcement Learning agent. |
| title_fullStr | Explainable post hoc portfolio management financial policy of a Deep Reinforcement Learning agent. |
| title_full_unstemmed | Explainable post hoc portfolio management financial policy of a Deep Reinforcement Learning agent. |
| title_short | Explainable post hoc portfolio management financial policy of a Deep Reinforcement Learning agent. |
| title_sort | explainable post hoc portfolio management financial policy of a deep reinforcement learning agent |
| url | https://doi.org/10.1371/journal.pone.0315528 |
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