Navigating the Alpha Jungle: An LLM-Powered MCTS Framework for Formulaic Factor Mining (2505.11122v1)

Abstract: Alpha factor mining is pivotal in quantitative investment for identifying predictive signals from complex financial data. While traditional formulaic alpha mining relies on human expertise, contemporary automated methods, such as those based on genetic programming or reinforcement learning, often suffer from search inefficiency or yield poorly interpretable alpha factors. This paper introduces a novel framework that integrates LLMs with Monte Carlo Tree Search (MCTS) to overcome these limitations. Our approach leverages the LLM's instruction-following and reasoning capability to iteratively generate and refine symbolic alpha formulas within an MCTS-driven exploration. A key innovation is the guidance of MCTS exploration by rich, quantitative feedback from financial backtesting of each candidate factor, enabling efficient navigation of the vast search space. Furthermore, a frequent subtree avoidance mechanism is introduced to bolster search efficiency and alpha factor performance. Experimental results on real-world stock market data demonstrate that our LLM-based framework outperforms existing methods by mining alphas with superior predictive accuracy, trading performance, and improved interpretability, while offering a more efficient solution for formulaic alpha mining.