Related papers: Reinforcement Learning for Credit Index Option Hedging

Reinforcement Learning for Credit Index Option Hedging

URL: http://arxiv.org/abs/2307.09844v1
Date: Wed, 19 Jul 2023 09:03:41 GMT
Title: Reinforcement Learning for Credit Index Option Hedging
Authors: Francesco Mandelli, Marco Pinciroli, Michele Trapletti, Edoardo Vittori
Abstract summary: In this paper, we focus on finding the optimal hedging strategy of a credit index option using reinforcement learning. We take a practical approach, where the focus is on realism i.e. discrete time, transaction costs; even testing our policy on real market data.
Score: 2.568904868787359
License: http://creativecommons.org/licenses/by/4.0/
Abstract: In this paper, we focus on finding the optimal hedging strategy of a credit index option using reinforcement learning. We take a practical approach, where the focus is on realism i.e. discrete time, transaction costs; even testing our policy on real market data. We apply a state of the art algorithm, the Trust Region Volatility Optimization (TRVO) algorithm and show that the derived hedging strategy outperforms the practitioner's Black & Scholes delta hedge.

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