Skip to content
Open access

FrontierStep-RL: Fixed-Dimensional Structured Actions for Transaction-Cost-Aware Portfolio Reinforcement Learning

Sep 2026 · Mathematics · 0 citations · 51 references

TL;DR

This study proposes FrontierStep-RL, which replaces the direct N-dimensional action with two bounded variables: a frontier coordinate and a rebalancing step, which supports fixed-dimensional target selection and controlled execution for scalable, transaction-cost-aware portfolio RL.

Abstract

Portfolio reinforcement learning (RL) commonly represents each action as a complete asset-weight vector, causing the action dimension and exploration difficulty to grow with the investment universe. This study proposes FrontierStep-RL, which replaces the direct N-dimensional action with two bounded variables: a frontier coordinate and a rebalancing step. At each decision date, rolling estimates of expected returns and covariance define a regularized efficient frontier. A cost–risk-aware coordinate organizes the frontier using normalized local changes in predicted volatility and one-way turnover. The coordinate selects a frontier-supported target portfolio, while the step controls how far the pre-trade portfolio moves toward that target. We evaluate FrontierStep-RL on FF49, FF100, and FNSPID-50 against traditional strategies, controlled direct-weight RL policies, and recent portfolio-management methods. FrontierStep-RL achieves net Sharpe ratios of 0.75 on both FF49 and FNSPID-50 while maintaining comparatively low volatility, drawdown, and turnover. In the 100-asset setting, it achieves 0.68, compared with 0.52 for the strongest direct-weight baseline, and completes all runs. At a transaction cost of 50 basis points, it retains net Sharpe ratios of 0.559 and 0.568. The results support fixed-dimensional target selection and controlled execution for scalable, transaction-cost-aware portfolio RL.

Read PDF

Similar papers

#artificial intelligence Preprint Oct 2026

PPO-HRAP: Proximal Policy Optimization with a Hybrid Regime-Aware Policy for Risk-Controlled Trading

Reinforcement learning for trading often struggles to balance upside participation with drawdown control. Profit-only policies can collapse toward passive long exposure on upward-drifting assets, while aggressively risk-penalized rewards can become too defensive during volatile periods. This paper proposes PPO-HRAP, a...

Kien Hien Chi Duong, T. T. Huynh · 0 citations
Conference Aug 2026

Reinforcement Learning for Adaptive Market-Making with Inventory-Aware Risk Constraints

It is essential for market-making strategies to optimally capture the spread, balance their inventory, and adjust to changing order-book dynamics. In this paper, we explore the use of Proximal Policy Optimization (PPO) to perform adaptive market making in a simulated limit-order-book setting using the MSFT data from th...

Zubair Raja Ahamed Zaffarullah, Priyameet Kaur Keer, Rubani Singla et al. · 0 citations
#artificial intelligence Preprint Sep 2026

LiveOption: Evaluating LLM Agents in Structured Option Trading with Nonlinear Payoffs

Large language models (LLMs) and multi-agent systems (MAS) have shown promise in financial decision-making, yet existing evaluations focus on equity trading and primarily assess directional prediction, overlooking the structural complexity of derivative markets. Option trading introduces fundamentally different challen...

Hao-Chen Luo, Yi-Fan Li, Binh Minh An et al. · 0 citations

To boost or not to boost? XGBoost and DCC-GARCH integration for mean-variance portfolio optimization

This study examines whether integrating machine learning-based return forecasting and dynamic covariance estimation into a mean-variance portfolio framework produces measurable improvements over a conventional benchmark. Three strategies are constructed and evaluated over a five-year out-of-sample window from January 2...

Gun Assavasopee · 0 citations

We use cookies to run the site and, with your consent, for analytics and to show ads. See our Cookie Policy.