Deep Hedging under Rough Volatility
25 Pages Posted: 18 Feb 2021
Date Written: February 2, 2021
We investigate the performance of the Deep Hedging framework under training paths beyond the (finite dimensional) Markovian setup. In particular we analyse the hedging performance of the original architecture under rough volatility models with view to existing theoretical results for those. Furthermore, we suggest parsimonious but suitable network architectures capable of capturing the non-Markoviantity of time-series. Secondly, we analyse the hedging behaviour in these models in terms of P&L distributions and draw comparisons to jump diffusion models if the the rebalancing frequency is realistically small.
Keywords: Imperfect Hedging, Derivatives Pricing, Derivatives Hedging, Deep Learning, Rough Volatility
JEL Classification: C61, C58, C45, G32
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