Related papers: Deep Hedging Bermudan Swaptions
A leveraged exchange traded fund (LETF) is an exchange traded fund that uses financial derivatives to amplify the price changes of a basket of goods. In this paper, we consider the robust hedging of European options on a LETF, finding…
In this paper, we study the robustness of classical deep hedging strategies under distributional shifts by leveraging the concept of adversarial attacks. We first demonstrate that standard deep hedging models are highly vulnerable to small…
All the financial practitioners are working in incomplete markets full of unhedgeable risk-factors. Making the situation worse, they are only equipped with the imperfect information on the relevant processes. In addition to the market risk,…
We propose a deep learning approach to study the minimal variance pricing and hedging problem in an incomplete jump diffusion market. It is based upon a rigorous stochastic calculus derivation of the optimal hedging portfolio, optimal…
Rough volatility models are known to reproduce the behavior of historical volatility data while at the same time fitting the volatility surface remarkably well, with very few parameters. However, managing the risks of derivatives under…
We introduce a price impact model which accounts for finite market depth, tightness and resilience. Its coupled bid- and ask-price dynamics induce convex liquidity costs. We provide existence of an optimal solution to the classical problem…
The Black-Scholes model, defined under the assumption of a perfect financial market, theoretically creates a flawless hedging strategy allowing the trader to evade risks in a portfolio of options. However, the concept of a "perfect…
The availability of deep hedging has opened new horizons for solving hedging problems under a large variety of realistic market conditions. At the same time, any model - be it a traditional stochastic model or a market generator - is at…
The Black-Scholes option pricing model remains a cornerstone in financial mathematics, yet its application is often challenged by the need for accurate hedging strategies, especially in dynamic market environments. This paper presents a…
We consider the martingale optimal transport duality for c\`adl\`ag processes with given initial and terminal laws. Strong duality and existence of dual optimizers (robust semi-static superhedging strategies) are proved for a class of…
We study the problem of option replication under constant proportional transaction costs in models where stochastic volatility and jumps are combined to capture the market's important features. Assuming some mild condition on the jump size…
The objectives of option hedging/trading extend beyond mere protection against downside risks, with a desire to seek gains also driving agent's strategies. In this study, we showcase the potential of robust risk-aware reinforcement learning…
Progressive Hedging is a popular decomposition algorithm for solving multi-stage stochastic optimization problems. A computational bottleneck of this algorithm is that all scenario subproblems have to be solved at each iteration. In this…
This paper presents hedging strategies for European and exotic options in a Levy market. By applying Taylor's Theorem, dynamic hedging portfolios are con- structed under different market assumptions, such as the existence of power jump…
We consider the pricing of derivatives in a setting with trading restrictions, but without any probabilistic assumptions on the underlying model, in discrete and continuous time. In particular, we assume that European put or call options…
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…
The problem of stock hedging is reconsidered in this paper, where a put option is chosen from a set of available put options to hedge the market risk of a stock. A formula is proposed to determine the probability that the potential loss…
The use of non-translation invariant risk measures within the equal risk pricing (ERP) methodology for the valuation of financial derivatives is investigated. The ability to move beyond the class of convex risk measures considered in…
It is well-known that using delta hedging to hedge financial options is not feasible in practice. Traders often rely on discrete-time hedging strategies based on fixed trading times or fixed trading prices (i.e., trades only occur if the…
In this paper, we explore the pricing and hedging strategies for an innovative insurance product called the equity protection swap(EPS). Notably, we focus on the application of EPSs involving cross-currency reference portfolios, reflecting…