A Genetic Programming Approach for Delta Hedging
Created by W.Langdon from
gp-bibliography.bib Revision:1.8081
- @InProceedings{yin:agpafdh:cec2015,
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author = "Zheng Yin and Anthony Brabazon and
Conall O'Sullivan and Michael O'Neill",
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title = "A Genetic Programming Approach for Delta Hedging",
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booktitle = "Proceedings of 2015 IEEE Congress on Evolutionary
Computation (CEC 2015)",
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editor = "Yadahiko Murata",
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pages = "3312--3318",
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year = "2015",
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address = "Sendai, Japan",
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month = "25-28 " # may,
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publisher = "IEEE Press",
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keywords = "genetic algorithms, genetic programming",
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DOI = "doi:10.1109/CEC.2015.7257304",
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abstract = "Effective hedging of derivative securities is of
paramount importance to derivatives investors and to
market makers. The standard approach used to hedge
derivative instruments is delta hedging. In a
Black-Scholes setting, a continuously rebalanced delta
hedged portfolio will result in a perfect hedge with no
associated hedging error. In reality, continuous
rehedging is impossible and this raises the important
practical question such as when should a portfolio
manager rebalance the portfolio? In practice, many
portfolio managers employ relatively simple
deterministic rebalancing strategies, such as
rebalancing at uniform time intervals, or rehedging
when the underlying asset moves by a fixed number of
ticks. While such strategies are easy to implement they
will expose the portfolio to hedging risk, both in
terms of timing and also as the strategies do not
adequately consider market conditions. In this study we
propose a rebalancing trigger based on the output from
a GP-evolved hedging strategy that rebalances the
portfolio based on dynamic non-linear factors related
to the condition of the market, derived from the
theoretical literature, including a number of liquidity
and volatility factors. The developed GP-evolved
hedging strategy outperforms the deterministic time
based hedging methods when tested on FTSE 100 call
options. This paper represents the first such
application of GP for this important application.",
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notes = "1050 hrs 15197 CEC2015",
- }
Genetic Programming entries for
Zheng Yin
Anthony Brabazon
Conall O'Sullivan
Michael O'Neill
Citations