Deep Replication

65 Pages Posted: 4 Mar 2020 Last revised: 7 Feb 2023

See all articles by Antoine Didisheim

Antoine Didisheim

The University of Melbourne; Swiss Finance Institute

Dimitris Karyampas

Bocconi University

Simon Scheidegger

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne)

Date Written: February 7, 2020


How does the market makers' aversion to unhedgeable risks influence option prices? We answer this question by introducing a structural approach: deep replication. With it, we extract the risk aversion of a representative market maker for S&P500 options per contract and per day. Cross-sectionally, we show the existence of a risk aversion smile across the options' moneyness. Across time, we measure a regime change following 2008, with put options exhibiting a higher average risk aversion premium in the post-crisis environment. With a stylized model and empirical analysis, we demonstrate a link between the risk aversion smile, inventory, and unhedgeable risks.

Keywords: Deep Learning, Agent Preferences, Risk Aversion, Volatility Smile, Asset Pricing

JEL Classification: C61, C73, D82, D86, E61

Suggested Citation

Didisheim, Antoine and Karyampas, Dimitris and Scheidegger, Simon, Deep Replication (February 7, 2020). Available at SSRN: or

Antoine Didisheim

The University of Melbourne ( email )

Parkville, 3010
0435776821 (Phone)

Swiss Finance Institute ( email )

University of Melbourne
Melbourne, VA
0797605012 (Phone)

Dimitris Karyampas

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136

Simon Scheidegger (Contact Author)

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne) ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics