Details

Autor(en) / Beteiligte

• Cao, Jay
• Chen, Jacky
• Farghadani, Soroush
• Hull, John
• Poulos, Zissis
• Wang, Zeyu
• Yuan, Jun

Titel

Gamma and vega hedging using deep distributional reinforcement learning

Ist Teil von

• Frontiers in artificial intelligence, 2023-02, Vol.6, p.1129370-1129370

Ort / Verlag

Switzerland: Frontiers Media S.A

Erscheinungsjahr

2023

Quelle

EZB Electronic Journals Library

Beschreibungen/Notizen

• We show how reinforcement learning can be used in conjunction with quantile regression to develop a hedging strategy for a trader responsible for derivatives that arrive stochastically and depend on a single underlying asset. We assume that the trader makes the portfolio delta-neutral at the end of each day by taking a position in the underlying asset. We focus on how trades in options can be used to manage gamma and vega. The option trades are subject to transaction costs. We consider three different objective functions. We reach conclusions on how the optimal hedging strategy depends on the trader's objective function, the level of transaction costs, and the maturity of the options used for hedging. We also investigate the robustness of the hedging strategy to the process assumed for the underlying asset.