# How to minimize sharpe ratio with LSTM recurrent neural network?

I've read some articles about trading using recurrent reinforcement learning such as this one. The point where I do not fully understand is how to construct the cost/loss function.

In the article, Sharpe Ratio is one of the options that we can let the RNN minimize. The definition of Sharpe Ratio is $$\frac{Average(R_t)}{StandardDeviation(R_t)}$$ where $$R_t$$ is the return on investment. So I assume this $$R_t$$ (return) here is the reward of reinforcement learning.

The target of the algorithm is to maximize sharpe ratio, so my question is, how should I construct the structure of neural network/reinforcement learning framework in order to implement this gradient ascent method to maximize sharpe ratio?

In particular, the input data is price series, what should the output data be? What should the cost/loss function be?

• Typically one seeks to maximize the Sharpe, but to each his own. – shabbychef Feb 2 at 5:44