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.
2024
Pubblicato
Rilevanza internazionale
Articolo
Sì, ma tipo non specificato
Settore STAT-04/A - Metodi matematici dell'economia e delle scienze attuariali e finanziarie
English
Senza Impact Factor ISI
Reinforcement Learning; Dynamic Strategies; Risk management
http://dx.doi.org/10.2139/ssrn.5061664
Giorgi, F., Herzel, S., Pigato, P. (2024). A Reinforcement Learning Algorithm For Option Hedging [10.2139/ssrn.5061664].
Giorgi, F; Herzel, S; Pigato, P
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2108/399323
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