Next Article in Journal
Do Profitable Banks Make a Positive Contribution to the Economy?
Next Article in Special Issue
American Option Pricing with Importance Sampling and Shifted Regressions
Previous Article in Journal
Bitcoin Price Risk—A Durations Perspective
Previous Article in Special Issue
Pricing American Options with a Non-Constant Penalty Parameter
Article

Pricing and Hedging American-Style Options with Deep Learning

1
RiskLab, ETH Zurich, 8092 Zurich, Switzerland
2
Faculty of Mathematics and Computer Science, University of Münster, 48149 Münster, Germany
*
Author to whom correspondence should be addressed.
J. Risk Financial Manag. 2020, 13(7), 158; https://doi.org/10.3390/jrfm13070158
Received: 23 December 2019 / Revised: 14 July 2020 / Accepted: 15 July 2020 / Published: 19 July 2020
(This article belongs to the Collection Option Pricing)
In this paper we introduce a deep learning method for pricing and hedging American-style options. It first computes a candidate optimal stopping policy. From there it derives a lower bound for the price. Then it calculates an upper bound, a point estimate and confidence intervals. Finally, it constructs an approximate dynamic hedging strategy. We test the approach on different specifications of a Bermudan max-call option. In all cases it produces highly accurate prices and dynamic hedging strategies with small replication errors. View Full-Text
Keywords: American option; Bermudan option; optimal stopping; lower bound; upper bound; hedging strategy; deep neural network American option; Bermudan option; optimal stopping; lower bound; upper bound; hedging strategy; deep neural network
Show Figures

Figure 1

MDPI and ACS Style

Becker, S.; Cheridito, P.; Jentzen, A. Pricing and Hedging American-Style Options with Deep Learning. J. Risk Financial Manag. 2020, 13, 158. https://doi.org/10.3390/jrfm13070158

AMA Style

Becker S, Cheridito P, Jentzen A. Pricing and Hedging American-Style Options with Deep Learning. Journal of Risk and Financial Management. 2020; 13(7):158. https://doi.org/10.3390/jrfm13070158

Chicago/Turabian Style

Becker, Sebastian, Patrick Cheridito, and Arnulf Jentzen. 2020. "Pricing and Hedging American-Style Options with Deep Learning" Journal of Risk and Financial Management 13, no. 7: 158. https://doi.org/10.3390/jrfm13070158

Find Other Styles
Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.

Article Access Map by Country/Region

1
Back to TopTop