FlowOE: Imitation Learning with Flow Policy from Ensemble RL Experts for Optimal Execution under Heston Volatility and Concave Market Impacts

TL;DR

FlowOE is a novel imitation learning framework that leverages flow matching models to improve optimal execution strategies in financial markets by learning from expert behaviors and adapting to market conditions.

Contribution

This work introduces flowOE, the first application of flow matching models to stochastic optimal execution, combining imitation learning with adaptive expert selection and a refining loss.

Findings

FlowOE outperforms traditional expert models in profit and risk reduction.

Empirical results show significant improvement over benchmarks across market conditions.

FlowOE demonstrates practical effectiveness in dynamic trading environments.

Abstract

Optimal execution in financial markets refers to the process of strategically transacting a large volume of assets over a period to achieve the best possible outcome by balancing the trade-off between market impact costs and timing or volatility risks. Traditional optimal execution strategies, such as static Almgren-Chriss models, often prove suboptimal in dynamic financial markets. This paper propose flowOE, a novel imitation learning framework based on flow matching models, to address these limitations. FlowOE learns from a diverse set of expert traditional strategies and adaptively selects the most suitable expert behavior for prevailing market conditions. A key innovation is the incorporation of a refining loss function during the imitation process, enabling flowOE not only to mimic but also to improve upon the learned expert actions. To the best of our knowledge, this work is the first to apply flow matching models in a stochastic optimal execution problem. Empirical evaluations across various market conditions demonstrate that flowOE significantly outperforms both the specifically calibrated expert models and other traditional benchmarks, achieving higher profits with reduced risk. These results underscore the practical applicability and potential of flowOE to enhance adaptive optimal execution.