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We propose a Reinforcement Learning algorithm to hedge the payoff of a European call option. The algorithm is first tested on the Black-Scholes-Merton model, where the problem has a well known solution, so that we can compare the strategy obtained by the algorithm to the theoretical optimal one. Then, in a more realistic case that includes transaction costs, the algorithm outperforms the standard delta hedging strategy.

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Option Hedging Through Reinforcement Learning

  • 会议论文

  • 发表日期：

    2025年

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  • Federico Giorgi,
  • Stefano Herzel,
  • Paolo Pigato

摘要

We propose a Reinforcement Learning algorithm to hedge the payoff of a European call option. The algorithm is first tested on the Black-Scholes-Merton model, where the problem has a well known solution, so that we can compare the strategy obtained by the algorithm to the theoretical optimal one. Then, in a more realistic case that includes transaction costs, the algorithm outperforms the standard delta hedging strategy.