To Trade or Not to Trade: An Agentic Approach to Estimating Market Risk Improves Trading Decisions
On the map: LLM agents and tool use → Financial trading and forecasting agents
Abstract (arXiv)
Large language models (LLMs) are increasingly deployed in agentic frameworks, in which prompts trigger complex tool-based analysis in pursuit of a goal. While these frameworks have shown promise across multiple domains including in finance, they typically lack a principled model-building step, relying instead on sentiment- or trend-based analysis. We address this gap by developing an agentic system that uses LLMs to iteratively discover stochastic differential equations for financial time series. These models generate risk metrics which inform daily trading decisions. We evaluate our system in both traditional backtests and using a market simulator, which introduces synthetic but causally plausible price paths and news events. We find that model-informed trading strategies outperform standard LLM-based agents, improving Sharpe ratios across multiple equities. Our results show that combining LLMs with agentic model discovery enhances market risk estimation and enables more profitable trading decisions.
Key facts. Cited by 2 papers in the map (data through 14 Oct 2026). Placed in Financial trading and forecasting agents, one of 16 directions in LLM agents and tool use. Builds on 33 of its 59 references that are in the map. First posted on arXiv 11 Jul 2025.
Builds on
33 of 59 references.
Closest ancestors · 3
Same direction, newest first
- 2024TradingAgents: Multi-Agents LLM Financial Trading Framework28 Dec
- 2024Large Language Model Agent in Financial Trading: A Survey26 Jul
- 2023FinMem: A Performance-Enhanced LLM Trading Agent with Layered Memory and Character Design23 Nov
Other references · 30
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- 2025The Illusion of Thinking: Understanding the Strengths and Limitations of Reasoning Models via the Lens of Problem Complexitycited by 302
- 2022On Neural Differential Equationscited by 268
- 2023Large Language Models in Finance: A Surveycited by 226
- 2025From LLM Reasoning to Autonomous AI Agents: A Comprehensive Reviewcited by 149
18 more
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- 2025Agentic Large Language Models, a surveycited by 108
- 2024Revolutionizing Finance with LLMs: An Overview of Applications and Insightscited by 90
- 2024A Survey of Large Language Models for Financial Applications: Progress, Prospects and Challengescited by 90
- 2024Open-Endedness is Essential for Artificial Superhuman Intelligencecited by 80
- 2024OMNI-EPIC: Open-endedness via Models of human Notions of Interestingness with Environments Programmed in Codecited by 74
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- 2023Text Summarization Using Large Language Models: A Comparative Study of MPT-7b-instruct, Falcon-7b-instruct, and OpenAI Chat-GPT Modelscited by 36
- 2023MacGyver: Are Large Language Models Creative Problem Solvers?cited by 34
- 2024Automate Strategy Finding with LLM in Quant Investmentcited by 26
- 2024TradExpert: Revolutionizing Trading with Mixture of Expert LLMscited by 12
- 2025From Deep Learning to LLMs: A survey of AI in Quantitative Investmentcited by 9
- 2024Application of Natural Language Processing in Financial Risk Detectioncited by 8
- 2024Quantifying Qualitative Insights: Leveraging LLMs to Market Predictcited by 3
- 2024Neuro-Symbolic Traders: Assessing the Wisdom of AI Crowds in Marketscited by 2
Built on by
Citing papers per year: 2025: 1; 2026: 1.
2 papers.
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- 2025When Agents Trade: Live Multi-Market Trading Benchmark for LLM Agents
- 2024When AI Meets Finance (StockAgent): Large Language Model-based Stock Trading in Simulated Real-world Environments
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