Learning Optimal Trading Strategy with Transaction Costs


    Department of Systems Engineering and Engineering Management

                       The Chinese University of Hong Kong


Date: Friday, November 24, 2023, 4:30pm to 5:30pm HKT

Venue: ERB 513, The Chinese University of Hong Kong

Title: Learning Optimal Trading Strategy with Transaction Costs

Speaker: Prof. Min Dai, The Hong Kong Polytechnic University



We develop a reinforcement learning method to learn an optimal trading strategy in the presence of transaction costs. Using a connection between singular control and a Dynkin game for portfolio choice with transaction costs, we learn the value function and optimal policy of an associated randomized Dynkin game, where a regularization term is incorporated to encourage exploration. We show that the policy efficiently approximates the optimal trading strategy. We design a reinforcement learning algorithm, which is demonstrated by numerical results. This work is jointly with Yuchao Dong.


Min Dai is Chair Professor in Applied Statistics and Financial Mathematics in Department of Applied Mathematics and School of Accounting and Finance, The Hong Kong Polytechnic University (PolyU). Prior to joining the PolyU in 2021, he taught at National University of Singapore and Peking University. His research focuses on option pricing, portfolio selection, corporate finance, and financial technology. He has published in top journals of different disciplines, such as Journal of Finance, Review of Financial Studies, Management Science, Journal of Economic Theory, and Mathematical Finance. Currently he is a co-editor of Digital Finance and serves in editorial boards of many academic journals, including Finance and Stochastics, Journal of Economic Dynamics and Control, and SIAM Journal on Financial Mathematics. He will be a plenary speaker of the 12th World Congress of the Bachelier Finance Society.

Everyone is welcome to attend the talk!

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Friday, November 24, 2023 - 16:30