# Finance-Grounded Optimization For Algorithmic Trading

arXiv: https://arxiv.org/abs/2509.04541 · HTML: https://mlsanity.com/paper/2509.04541/

## Key facts

- No citing papers in the map yet (data through 14 Oct 2026).
- Builds on 7 of its 14 references that are in the map.
- First posted on arXiv 4 Sep 2025.

## Builds on (most cited first, 7 of 7)

- [Chain-of-Thought Prompting Elicits Reasoning in Large Language Models](https://mlsanity.com/paper/2201.11903/) (2022)
- [The Landscape of Emerging AI Agent Architectures for Reasoning, Planning, and Tool Calling: A Survey](https://mlsanity.com/paper/2404.11584/) (2024)
- [Can ChatGPT Forecast Stock Price Movements? Return Predictability and Large Language Models](https://mlsanity.com/paper/2304.07619/) (2023)
- [q-Learning in Continuous Time](https://mlsanity.com/paper/2207.00713/) (2022)
- [Instruct-FinGPT: Financial Sentiment Analysis by Instruction Tuning of General-Purpose Large Language Models](https://mlsanity.com/paper/2306.12659/) (2023)
- [DianJin-R1: Evaluating and Enhancing Financial Reasoning in Large Language Models](https://mlsanity.com/paper/2504.15716/) (2025)
- [Multimodal Stock Price Prediction: A Case Study of the Russian Securities Market](https://mlsanity.com/paper/2503.08696/) (2025)

## Abstract (arXiv)

Deep Learning is evolving fast and integrates into various domains. Finance is a challenging field for deep learning, especially in the case of interpretable artificial intelligence (AI). Although classical approaches perform very well with natural language processing, computer vision, and forecasting, they are not perfect for the financial world, in which specialists use different metrics to evaluate model performance. We first introduce financially grounded loss functions derived from key quantitative finance metrics, including the Sharpe ratio, Profit-and-Loss (PnL), and Maximum Draw down. Additionally, we propose turnover regularization, a method that inherently constrains the turnover of generated positions within predefined limits. Our findings demonstrate that the proposed loss functions, in conjunction with turnover regularization, outperform the traditional mean squared error loss for return prediction tasks when evaluated using algorithmic trading metrics. The study shows that financially grounded metrics enhance predictive performance in trading strategies and portfolio optimization.