Knowledge discovery with Deep RL for selecting financial hedges (AAAI 2021 KDF Presentation slides)

19 Pages Posted: 28 Sep 2021

See all articles by Eric Benhamou

Eric Benhamou

Université Paris Dauphine; EB AI Advisory; AI For Alpha

David Saltiel

Université Paris Dauphine; A.I. Square Connect; AI For Alpha

Sandrine Ungari

Societe Generale

Abhishek Mukhopadhyay

SGCIB

Date Written: September 26, 2021

Abstract

Can an asset manager gain knowledge from different data sources to select the right hedging strategy for his portfolio? We use Deep Reinforcement Learning (Deep RL or DRL) to extract information from not only past performances of the hedging strategies but also additional contextual information like risk aversion, correlation data, credit information and estimated earnings per shares. Our contributions are threefold: (i) the use of contextual information also referred to as augmented state in DRL, (ii) the impact of a one period lag between observations and actions that is more realistic for an asset management environment, (iii) the implementation of a new repetitive train test method called walk forward analysis, similar in spirit to cross validation for time series. Although our experiment is on trading bots, it can easily be translated to other bot environments that operate in sequential environment with regime changes and noisy data. Our experiment for an augmented asset manager interested in finding the best portfolio for hedging strategies achieves superior returns and lower risk.

Keywords: Deep Reinforcement Learning, Hedge selection

JEL Classification: G12, G13

Suggested Citation

Benhamou, Eric and Saltiel, David and Ungari, Sandrine and Mukhopadhyay, Abhishek, Knowledge discovery with Deep RL for selecting financial hedges (AAAI 2021 KDF Presentation slides) (September 26, 2021). Available at SSRN: https://ssrn.com/abstract=3930787 or http://dx.doi.org/10.2139/ssrn.3930787

Eric Benhamou (Contact Author)

Université Paris Dauphine ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

EB AI Advisory ( email )

35 Boulevard d'Inkermann
Neuilly sur Seine, 92200
France

AI For Alpha ( email )

35 boulevard d'Inkermann
Neuilly sur Seine, 92200
France

David Saltiel

Université Paris Dauphine ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

A.I. Square Connect ( email )

35 Boulevard d'Inkermann
Neuilly sur Seine, 92200
France

AI For Alpha ( email )

35 boulevard d'Inkermann
Neuilly sur Seine, 92200
France

Sandrine Ungari

Societe Generale ( email )

52 Place de l'Ellipse
La Défense, 92000
France

Abhishek Mukhopadhyay

SGCIB ( email )

52 Place de l'Ellipse
La Défense, 92000
France

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

Paper statistics

Downloads
17,583
Abstract Views
49,780
rank
267
PlumX Metrics