MCFAM Seminar - Enhancing Deep Hedging of Options with Implied Volatility Surface Feedback Information

Speaker:  Carlos P. Mendoza
 
Abstract: 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, with a novel hybrid neural network architecture improving the training performance. 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.
 
Category
Start date
Friday, Oct. 4, 2024, Noon
End date
Friday, Oct. 4, 2024, 1 p.m.
Location

Vincent Hall - Room 6

Via Zoom

Share