Integrating Fuzzy Logic with Deep Reinforcement Learning to Enhance Financial Portfolio Management

Rezaei, Mohadese; NezamAbAdipour, Hossein

doi:10.22111/ijfs.2025.50135.8847

Document Type : Research Paper

Authors

¹ Intelligent Data Processing Laboratory (IDPL), Department of Electrical Engineering, Shahid Bahonar University of Kerman,Kerman,Iran

² University Of Kerman, Kerman, Iran

https://doi.org/10.22111/ijfs.2025.50135.8847

Abstract

Portfolio management is a challenging task due to the uncertainty and volatility in financial markets, making precise asset allocation and return maximization difficult. This paper presents a novel deep reinforcement learning (DRL) approach enhanced with fuzzy trend indicators to improve portfolio decision-making. The model was developed using a DRL framework, where a convolutional neural network (CNN)-based policy network learns to optimize asset allocations through interactions with the market. Fuzzy trend indicators are incorporated as additional input features, enabling the model to better capture market uncertainties and ambiguous trends. By providing a more flexible representation of market conditions, fuzzy trend indicators allow the model to dynamically adjust portfolio allocations in response to changing trends, leading to more precise asset allocation decisions and enhanced portfolio performance. The proposed model was trained and evaluated on historical stock data from the Brazilian stock market, covering the period from 2011 to 2020. The dataset includes daily high, low, and closing prices, ensuring a strong foundation for model training and validation. Experimental results show that the fuzzy-enhanced model outperforms some state-of-the-art strategies in terms of both returns and adaptability to volatile market conditions.

Keywords

Main Subjects

Fuzzy approximation

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Integrating Fuzzy Logic with Deep Reinforcement Learning to Enhance Financial Portfolio Management

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Volume 22, Issue 2March and April 2025Pages 187-204

Volume 22, Issue 2
March and April 2025
Pages 187-204