Enhancing Deep Hedging of Options with Implied Volatility Surface Feedback Information
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arXiv
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| Autores principales: | , , , |
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| Formato: | Preprint |
| Publicado: |
2024
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| Materias: | |
| Acceso en línea: | |
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| _version_ | 1866918124074303488 |
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| author | François, Pascal Gauthier, Geneviève Godin, Frédéric Mendoza, Carlos Octavio Pérez |
| author_facet | François, Pascal Gauthier, Geneviève Godin, Frédéric Mendoza, Carlos Octavio Pérez |
| contents | We present a dynamic hedging scheme for S&P 500 options, where rebalancing decisions are enhanced by integrating information about the implied volatility surface dynamics. The optimal hedging strategy is obtained through a deep policy gradient-type reinforcement learning algorithm. The favorable inclusion of forward-looking information embedded in the volatility surface allows our procedure to outperform several conventional benchmarks such as practitioner and smiled-implied delta hedging procedures, both in simulation and backtesting experiments. The outperformance is more pronounced in the presence of transaction costs. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2407_21138 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | Enhancing Deep Hedging of Options with Implied Volatility Surface Feedback Information François, Pascal Gauthier, Geneviève Godin, Frédéric Mendoza, Carlos Octavio Pérez Risk Management Machine Learning Computational Finance We present a dynamic hedging scheme for S&P 500 options, where rebalancing decisions are enhanced by integrating information about the implied volatility surface dynamics. The optimal hedging strategy is obtained through a deep policy gradient-type reinforcement learning algorithm. The favorable inclusion of forward-looking information embedded in the volatility surface allows our procedure to outperform several conventional benchmarks such as practitioner and smiled-implied delta hedging procedures, both in simulation and backtesting experiments. The outperformance is more pronounced in the presence of transaction costs. |
| title | Enhancing Deep Hedging of Options with Implied Volatility Surface Feedback Information |
| topic | Risk Management Machine Learning Computational Finance |
| url | https://arxiv.org/abs/2407.21138 |