mlsanityData to 7 Oct 2026

Deep Hedging

arXiv 1802.03042 ↗First posted 8 Feb 2018q-fin.CP cs.NA math.NAcited by 106

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Abstract (arXiv)

We present a framework for hedging a portfolio of derivatives in the presence of market frictions such as transaction costs, market impact, liquidity constraints or risk limits using modern deep reinforcement machine learning methods. We discuss how standard reinforcement learning methods can be applied to non-linear reward structures, i.e. in our case convex risk measures. As a general contribution to the use of deep learning for stochastic processes, we also show that the set of constrained trading strategies used by our algorithm is large enough to ε-approximate any optimal solution. Our algorithm can be implemented efficiently even in high-dimensional situations using modern machine learning tools. Its structure does not depend on specific market dynamics, and generalizes across hedging instruments including the use of liquid derivatives. Its computational performance is largely invariant in the size of the portfolio as it depends mainly on the number of hedging instruments available. We illustrate our approach by showing the effect on hedging under transaction costs in a synthetic market driven by the Heston model, where we outperform the standard "complete market" solution.

Key facts. Cited by 106 papers in the map (data through 7 Oct 2026). First posted on arXiv 8 Feb 2018.

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Citing papers per year: 2021: 19; 2022: 15; 2023: 15; 2024: 12; 2025: 28; 2026: 17.

106 papers.

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  1. 2021Recent Advances in Reinforcement Learning in Financecited by 102
  2. 2024Revolutionizing Finance with LLMs: An Overview of Applications and Insightscited by 88
  3. 2021FinRL: Deep Reinforcement Learning Framework to Automate Trading in Quantitative Financecited by 57
  4. 2023PARL: A Unified Framework for Policy Alignment in Reinforcement Learning from Human Feedbackcited by 38
  5. 2021Random feature neural networks learn Black-Scholes type PDEs without curse of dimensionalitycited by 34
  6. 2021Deep Hedging of Derivatives Using Reinforcement Learningcited by 30
  7. 2023Policy Optimization for Continuous Reinforcement Learningcited by 30
  8. 2021Towards Realistic Market Simulations: a Generative Adversarial Networks Approachcited by 29
  9. 2021Higher Order Kernel Mean Embeddings to Capture Filtrations of Stochastic Processescited by 27
  10. 2021Time-Correlated Sparsification for Communication-Efficient Federated Learningcited by 25
  11. 2022Designing Universal Causal Deep Learning Models: The Geometric (Hyper)Transformercited by 22
  12. 2023Quantum Deep Hedgingcited by 22
38 more
  1. 2023Generative modeling for time series via Schr"odinger bridgecited by 18
  2. 2021Multi-Asset Spot and Option Market Simulationcited by 17
  3. 2022Distributionally Robust End-to-End Portfolio Constructioncited by 17
  4. 2022Deep Hedging: Continuous Reinforcement Learning for Hedging of General Portfolios across Multiple Risk Aversionscited by 13
  5. 2021Deep Hedging: Learning to Remove the Drift under Trading Frictions with Minimal Equivalent Near-Martingale Measurescited by 11
  6. 2022Chaotic Hedging with Iterated Integrals and Neural Networkscited by 10
  7. 2022Deep neural network expressivity for optimal stopping problemscited by 9
  8. 2023Robust Risk-Aware Option Hedgingcited by 9
  9. 2021Robo-Advising: Enhancing Investment with Inverse Optimization and Deep Reinforcement Learningcited by 7
  10. 2021A Quantum Generative Adversarial Network for distributionscited by 7
  11. 2023SigFormer: Signature Transformers for Deep Hedgingcited by 7
  12. 2024Hedge Fund Portfolio Construction Using PolyModel Theory and iTransformercited by 7
  13. 2021A deep learning approach to data-driven model-free pricing and to martingale optimal transportcited by 6
  14. 2021How Robust are Limit Order Book Representations under Data Perturbation?cited by 6
  15. 2022Do ReLU Networks Have An Edge When Approximating Compactly-Supported Functions?cited by 6
  16. 2023FuNVol: A Multi-Asset Implied Volatility Market Simulator using Functional Principal Components and Neural SDEscited by 6
  17. 2023Data-Driven Merton's Strategies via Policy Randomizationcited by 6
  18. 2024Fast Deep Hedging with Second-Order Optimizationcited by 6
  19. 2022Pricing options on flow forwards by neural networks in Hilbert spacecited by 5
  20. 2022Langevin dynamics based algorithm e-THvarepsilonO POULA for stochastic optimization problems with discontinuous stochastic gradientcited by 5
  21. 2022Quant 4.0: Engineering Quantitative Investment with Automated, Explainable and Knowledge-driven Artificial Intelligencecited by 5
  22. 2023Adversarial Deep Hedging: Learning to Hedge without Price Process Modelingcited by 5
  23. 2025Generative Neural Operators of Log-Complexity Can Simultaneously Solve Infinitely Many Convex Programscited by 5
  24. 2021Conditional Loss and Deep Euler Scheme for Time Series Generationcited by 4
  25. 2022Detecting data-driven robust statistical arbitrage strategies with deep neural networkscited by 4
  26. 2023Reinforcement Learning with Non-Cumulative Objectivecited by 4
  27. 2024Deep Hedging with Market Impactcited by 4
  28. 2022Asset Allocation: From Markowitz to Deep Reinforcement Learningcited by 3
  29. 2023Machine learning for option pricing: an empirical investigation of network architecturescited by 3
  30. 2025DeltaHedge: A Multi-Agent Framework for Portfolio Options Optimizationcited by 3
  31. 2021Hedging of Financial Derivative Contracts via Monte Carlo Tree Searchcited by 2
  32. 2021Theoretically Motivated Data Augmentation and Regularization for Portfolio Constructioncited by 2
  33. 2022Estimating risks of option books using neural-SDE market modelscited by 2
  34. 2022Risk-Neutral Market Simulationcited by 2
  35. 2022Hedging option books using neural-SDE market modelscited by 2
  36. 2022Langevin algorithms for Markovian Neural Networks and Deep Stochastic controlcited by 2
  37. 2024Catastrophic-risk-aware reinforcement learning with extreme-value-theory-based policy gradientscited by 2
  38. 2024Enhancing Deep Hedging of Options with Implied Volatility Surface Feedback Informationcited by 2

50 most cited of 106 All 106 (JSON)