Deep Hedging
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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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- 2021Recent Advances in Reinforcement Learning in Financecited by 102
- 2024Revolutionizing Finance with LLMs: An Overview of Applications and Insightscited by 88
- 2021FinRL: Deep Reinforcement Learning Framework to Automate Trading in Quantitative Financecited by 57
- 2023PARL: A Unified Framework for Policy Alignment in Reinforcement Learning from Human Feedbackcited by 38
- 2021Random feature neural networks learn Black-Scholes type PDEs without curse of dimensionalitycited by 34
- 2021Deep Hedging of Derivatives Using Reinforcement Learningcited by 30
- 2023Policy Optimization for Continuous Reinforcement Learningcited by 30
- 2021Towards Realistic Market Simulations: a Generative Adversarial Networks Approachcited by 29
- 2021Higher Order Kernel Mean Embeddings to Capture Filtrations of Stochastic Processescited by 27
- 2021Time-Correlated Sparsification for Communication-Efficient Federated Learningcited by 25
- 2022Designing Universal Causal Deep Learning Models: The Geometric (Hyper)Transformercited by 22
- 2023Quantum Deep Hedgingcited by 22
38 more
- 2023Generative modeling for time series via Schr"odinger bridgecited by 18
- 2021Multi-Asset Spot and Option Market Simulationcited by 17
- 2022Distributionally Robust End-to-End Portfolio Constructioncited by 17
- 2022Deep Hedging: Continuous Reinforcement Learning for Hedging of General Portfolios across Multiple Risk Aversionscited by 13
- 2021Deep Hedging: Learning to Remove the Drift under Trading Frictions with Minimal Equivalent Near-Martingale Measurescited by 11
- 2022Chaotic Hedging with Iterated Integrals and Neural Networkscited by 10
- 2022Deep neural network expressivity for optimal stopping problemscited by 9
- 2023Robust Risk-Aware Option Hedgingcited by 9
- 2021Robo-Advising: Enhancing Investment with Inverse Optimization and Deep Reinforcement Learningcited by 7
- 2021A Quantum Generative Adversarial Network for distributionscited by 7
- 2023SigFormer: Signature Transformers for Deep Hedgingcited by 7
- 2024Hedge Fund Portfolio Construction Using PolyModel Theory and iTransformercited by 7
- 2021A deep learning approach to data-driven model-free pricing and to martingale optimal transportcited by 6
- 2021How Robust are Limit Order Book Representations under Data Perturbation?cited by 6
- 2022Do ReLU Networks Have An Edge When Approximating Compactly-Supported Functions?cited by 6
- 2023FuNVol: A Multi-Asset Implied Volatility Market Simulator using Functional Principal Components and Neural SDEscited by 6
- 2023Data-Driven Merton's Strategies via Policy Randomizationcited by 6
- 2024Fast Deep Hedging with Second-Order Optimizationcited by 6
- 2022Pricing options on flow forwards by neural networks in Hilbert spacecited by 5
- 2022Langevin dynamics based algorithm e-THvarepsilonO POULA for stochastic optimization problems with discontinuous stochastic gradientcited by 5
- 2022Quant 4.0: Engineering Quantitative Investment with Automated, Explainable and Knowledge-driven Artificial Intelligencecited by 5
- 2023Adversarial Deep Hedging: Learning to Hedge without Price Process Modelingcited by 5
- 2025Generative Neural Operators of Log-Complexity Can Simultaneously Solve Infinitely Many Convex Programscited by 5
- 2021Conditional Loss and Deep Euler Scheme for Time Series Generationcited by 4
- 2022Detecting data-driven robust statistical arbitrage strategies with deep neural networkscited by 4
- 2023Reinforcement Learning with Non-Cumulative Objectivecited by 4
- 2024Deep Hedging with Market Impactcited by 4
- 2022Asset Allocation: From Markowitz to Deep Reinforcement Learningcited by 3
- 2023Machine learning for option pricing: an empirical investigation of network architecturescited by 3
- 2025DeltaHedge: A Multi-Agent Framework for Portfolio Options Optimizationcited by 3
- 2021Hedging of Financial Derivative Contracts via Monte Carlo Tree Searchcited by 2
- 2021Theoretically Motivated Data Augmentation and Regularization for Portfolio Constructioncited by 2
- 2022Estimating risks of option books using neural-SDE market modelscited by 2
- 2022Risk-Neutral Market Simulationcited by 2
- 2022Hedging option books using neural-SDE market modelscited by 2
- 2022Langevin algorithms for Markovian Neural Networks and Deep Stochastic controlcited by 2
- 2024Catastrophic-risk-aware reinforcement learning with extreme-value-theory-based policy gradientscited by 2
- 2024Enhancing Deep Hedging of Options with Implied Volatility Surface Feedback Informationcited by 2
50 most cited of 106 All 106 (JSON)
- 2026Deep kernel hedging28 Sep 2026
- 2026Taming the Greeks: Option Portfolios with Inductive Biases27 Sep 2026
- 2026DYSANOS Generative Dynamic Smooth Arbitrage-free Non-parametric Option Surfaces12 Aug 2026
- 2026Robust Control under Stationary Ambiguity5 Aug 2026
- 2026Hard Constraints, Smooth Gradients: Learning Feasible Inventory Policies via Differentiable Projection3 Aug 2026
- 2026Climate-Dyna Deep Hedging for XVAs: Model-Based Reinforcement Learning, Residual Climate HVA, and Hedge-Instrument Discovery2 Aug 2026
- 2026A Noise-Robust Elicit-to-Optimize Framework for Distortion Riskmetrics via Inverse Reinforcement Learning15 Jul 2026
- 2026PIVOT: Bridging Black-Scholes Implied-Volatility and Price Objectives via Differentiable J"ackel Operator4 Jun 2026
- 2026Generating Financial Time Series by Matching Random Convolutional Features3 Jun 2026
- 2026High-Quality Synthetic Financial Time-Series using a GAN-Diffusion Framework26 May 2026
- 2026Synthetic American Option Pricing via Jump-HMM-Driven Heston Implied Volatility13 May 2026
- 2026MultiHedge: Adaptive Coordination via Retrieval-Augmented Control27 Apr 2026
38 more
- 2026When Quotes Crumble: Detecting Transient Mechanical Liquidity Erosion in Limit Order Books23 Apr 2026
- 2026Deep Reinforcement Learning for Optimal Portfolio Allocation: A Comparative Study with Mean-Variance Optimization19 Feb 2026
- 2026Autonomous AI Agents for Option Hedging: Enhancing Financial Stability through Shortfall Aware Reinforcement Learning1 Feb 2026
- 2026Reinforcement Learning for Micro-Level Claims Reserving12 Jan 2026
- 2026Reinforcement Learning for Option Hedging: Static Implied-Volatility Fit versus Shortfall-Aware Performance5 Jan 2026
- 2025Parametric Numerical Integration with (Differential) Machine Learning12 Dec 2025
- 2025Learning to Hedge Swaptions7 Dec 2025
- 2025Constrained deep learning for pricing and hedging european options in incomplete markets25 Nov 2025
- 2025A Risk-Neutral Neural Operator for Arbitrage-Free SPX-VIX Term Structures9 Nov 2025
- 2025Deep Learning-Enhanced Calibration of the Heston Model: A Unified Framework28 Oct 2025
- 2025Robust Reinforcement Learning in Finance: Modeling Market Impact with Elliptic Uncertainty Sets22 Oct 2025
- 2025A Topological Approach to Parameterizing Deep Hedging Networks19 Oct 2025
- 2025Application of Deep Reinforcement Learning to At-the-Money S&P 500 Options Hedging10 Oct 2025
- 2025Tail-Safe Hedging: Explainable Risk-Sensitive Reinforcement Learning with a White-Box CBF--QP Safety Layer in Arbitrage-Free Markets6 Oct 2025
- 2025Signature-Informed Transformer for Asset Allocation3 Oct 2025
- 2025Deep Hedging Under Non-Convexity: Limitations and a Case for AlphaZero2 Oct 2025
- 2025DeltaHedge: A Multi-Agent Framework for Portfolio Options Optimization16 Sep 2025
- 2025Mean-Field Generalisation Bounds for Learning Controls in Stochastic Environments21 Aug 2025
- 2025Generative Neural Operators of Log-Complexity Can Simultaneously Solve Infinitely Many Convex Programs20 Aug 2025
- 2025Distributional Adversarial Attacks and Training in Deep Hedging20 Aug 2025
- 2025Distributional Reinforcement Learning on Path-dependent Options16 Jul 2025
- 20252048: Reinforcement Learning in a Delayed Reward Environment7 Jul 2025
- 2025Dynamic Reinsurance Treaty Bidding via Multi-Agent Reinforcement Learning16 Jun 2025
- 2025Uncertainty-Aware Strategies: A Model-Agnostic Framework for Robust Financial Optimization through Subsampling8 Jun 2025
- 2025A Jump-Diffusion Framework for Irregular Time Series Generation29 May 2025
- 2025Risk-Averse Reinforcement Learning with Itakura-Saito Loss22 May 2025
- 2025Error Analysis of Deep PDE Solvers for Option Pricing8 May 2025
- 2025A new architecture of high-order deep neural networks that learn martingales1 May 2025
- 2025Deep Reinforcement Learning Algorithms for Option Hedging7 Apr 2025
- 2025Generative Market Equilibrium Models with Stable Adversarial Learning via Reinforcement5 Apr 2025
- 2025Deep Hedging of Green PPAs in Electricity Markets17 Mar 2025
- 2025Robust and Efficient Deep Hedging via Linearized Objective Neural Network25 Feb 2025
- 2025A Hybrid Framework for Reinsurance Optimization: Integrating Generative Models and Reinforcement Learning11 Jan 2025
- 2024Prediction-Enhanced Monte Carlo: A Machine Learning View on Control Variate15 Dec 2024
- 2024A New Way: Kronecker-Factored Approximate Curvature Deep Hedging and its Benefits22 Nov 2024
- 2024Fast Deep Hedging with Second-Order Optimization29 Oct 2024
- 2024EX-DRL: Hedging Against Heavy Losses with EXtreme Distributional Reinforcement Learning22 Aug 2024
- 2024Hedge Fund Portfolio Construction Using PolyModel Theory and iTransformer6 Aug 2024
50 newest of 106 All 106 (JSON)
- 2021Recent Advances in Reinforcement Learning in Financecited by 102
- 2024Revolutionizing Finance with LLMs: An Overview of Applications and Insightscited by 88
- 2021FinRL: Deep Reinforcement Learning Framework to Automate Trading in Quantitative Financecited by 57
- 2021Random feature neural networks learn Black-Scholes type PDEs without curse of dimensionalitycited by 34
- 2021Deep Hedging of Derivatives Using Reinforcement Learningcited by 30
- 2023Policy Optimization for Continuous Reinforcement Learningcited by 30
- 2021Towards Realistic Market Simulations: a Generative Adversarial Networks Approachcited by 29
- 2021Higher Order Kernel Mean Embeddings to Capture Filtrations of Stochastic Processescited by 27
- 2021Time-Correlated Sparsification for Communication-Efficient Federated Learningcited by 25
- 2022Designing Universal Causal Deep Learning Models: The Geometric (Hyper)Transformercited by 22
- 2023Quantum Deep Hedgingcited by 22
- 2023Generative modeling for time series via Schr"odinger bridgecited by 18
12 most cited of 103 All 103 (JSON)
- 2026Deep kernel hedging28 Sep 2026
- 2026Taming the Greeks: Option Portfolios with Inductive Biases27 Sep 2026
- 2026DYSANOS Generative Dynamic Smooth Arbitrage-free Non-parametric Option Surfaces12 Aug 2026
- 2026Robust Control under Stationary Ambiguity5 Aug 2026
- 2026Hard Constraints, Smooth Gradients: Learning Feasible Inventory Policies via Differentiable Projection3 Aug 2026
- 2026Climate-Dyna Deep Hedging for XVAs: Model-Based Reinforcement Learning, Residual Climate HVA, and Hedge-Instrument Discovery2 Aug 2026
- 2026PIVOT: Bridging Black-Scholes Implied-Volatility and Price Objectives via Differentiable J"ackel Operator4 Jun 2026
- 2026Generating Financial Time Series by Matching Random Convolutional Features3 Jun 2026
- 2026High-Quality Synthetic Financial Time-Series using a GAN-Diffusion Framework26 May 2026
- 2026Synthetic American Option Pricing via Jump-HMM-Driven Heston Implied Volatility13 May 2026
- 2026When Quotes Crumble: Detecting Transient Mechanical Liquidity Erosion in Limit Order Books23 Apr 2026
- 2026Deep Reinforcement Learning for Optimal Portfolio Allocation: A Comparative Study with Mean-Variance Optimization19 Feb 2026
12 newest of 103 All 103 (JSON)