TRJul 19, 2023
Reinforcement Learning for Credit Index Option HedgingFrancesco Mandelli, Marco Pinciroli, Michele Trapletti et al.
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.