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.
Giorgi, F., Herzel, S., Pigato, P. (2024). A Reinforcement Learning Algorithm For Option Hedging [10.2139/ssrn.5061664].
A Reinforcement Learning Algorithm For Option Hedging
Giorgi, Federico;Herzel, Stefano
;Pigato, Paolo
2024-01-01
Abstract
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.File in questo prodotto:
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