Dynamic hedging of 50ETF options using Proximal Policy Optimization
This paper employs the PPO (Proximal Policy Optimization) algorithm to study the risk hedging problem of the Shanghai Stock Exchange (SSE) 50ETF options. First, the action and state spaces were designed based on the characteristics of the hedging task, and a reward function was developed according to the cost function of the options. Second, combining the concept of curriculum learning, the agent was guided to adopt a simulated-to-real learning approach for dynamic hedging tasks, reducing the learning difficulty and addressing the issue of insufficient option data. A dynamic hedging strategy for 50ETF options was constructed. Finally, numerical experiments demonstrate the superiority of the designed algorithm over traditional hedging strategies in terms of hedging effectiveness.
Authors
- Jinde Cao (ORCID: https://orcid.org/0000-0003-3133-7119)
- Lei Liu (ORCID: https://orcid.org/0009-0002-1506-6961)
- Mengmeng Hao
Institutions
- Hohai University (CN)
- Southeast University (CN)
Publication Details
- Journal
- Journal of Automation and Intelligence
- Published
- 2025-04-09
- DOI
- https://doi.org/10.1016/j.jai.2025.04.001
- Citations
- 1
- Primary Topic
- Stochastic processes and financial applications
- Type
- article
- Field-Weighted Citation Impact
- 2.21
Funders
- National Natural Science Foundation of China