A Reinforcement Learning Algorithm For Option Hedging

Giorgi FedericoHerzel StefanoPigato Paolo
CEIS Research Paper
We propose an algorithm, based on Reinforcement Learning, to hedge the payoff on a European call option. The algorithm is first tested in a model where the problem has a well known analytic solution, so that we can compare the strategy obtained by the algorithm to the theoretical optimal one. In a more realistic case, considering transaction costs, the algorithm outperforms the standard delta hedging strategy.
 

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Number: 586
Keywords: Reinforcement Learning; Dynamic Strategies; Risk management
Volume: 22
Issue: 6
Date: Tuesday, December 17, 2024
Revision Date: Tuesday, December 17, 2024