English

Regime-aware financial volatility forecasting via in-context learning

Machine Learning 2026-03-12 v1

Abstract

This work introduces a regime-aware in-context learning framework that leverages large language models (LLMs) for financial volatility forecasting under nonstationary market conditions. The proposed approach deploys pretrained LLMs to reason over historical volatility patterns and adjust their predictions without parameter fine-tuning. We develop an oracle-guided refinement procedure that constructs regime-aware demonstrations from training data. An LLM is then deployed as an in-context learner that predicts the next-step volatility from the input sequence using demonstrations sampled conditional to the estimated market label. This conditional sampling strategy enables the LLM to adapt its predictions to regime-dependent volatility dynamics through contextual reasoning alone. Experiments with multiple financial datasets show that the proposed regime-aware in-context learning framework outperforms both classical volatility forecasting approaches and direct one-shot learning, especially during high-volatility periods.

Keywords

Cite

@article{arxiv.2603.10299,
  title  = {Regime-aware financial volatility forecasting via in-context learning},
  author = {Saba Asaad and Shayan Mohajer Hamidi and Ali Bereyhi},
  journal= {arXiv preprint arXiv:2603.10299},
  year   = {2026}
}

Comments

11 pages, 1 figure, Published as a conference paper at ICLR 2026 Workshop on Advances in Financial AI

R2 v1 2026-07-01T11:13:58.750Z