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.

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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

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article

Dynamic hedging of 50ETF options using Proximal Policy Optimization

Jinde Cao, Lei Liu, Mengmeng Hao
1 citations
Journal of Automation and Intelligence
Stochastic processes and financial applications
2.21
article

Dynamic hedging of 50ETF options using Proximal Policy Optimization

Jinde Cao, Lei Liu, Mengmeng Hao
article en
1 citations

Abstract

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.

Journal of Automation and IntelligenceVol. 4(3)
Hohai University (CN), Southeast University (CN)
National Natural Science Foundation of China
Openalex Percentile: Top 16%
Stochastic processes and financial applications
2.21
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