{"about":{"site":"https://codewithpapers.app","non_affiliation":"Code with Papers and Syntology are not affiliated with, endorsed by, or sponsored by Papers with Code, Meta, or the pwc-archive mirror.","licence":"CC BY-SA 4.0","licence_url":"https://creativecommons.org/licenses/by-sa/4.0/legalcode","attribution":"https://codewithpapers.app/attribution","modified":"archive material modified by Syntology; see the attribution page"},"url":"/paper/is-the-difference-between-deep-hedging-and","title":"Is the difference between deep hedging and delta hedging a statistical arbitrage?","arxiv_id":"2407.14736","date":"2024-07-20","proceeding":null,"authors":["Pascal François","Geneviève Gauthier","Frédéric Godin","Carlos Octavio Pérez Mendoza"],"abstract":"The recent work of Horikawa and Nakagawa (2024) claims that under a complete market admitting statistical arbitrage, the difference between the hedging position provided by deep hedging and that of the replicating portfolio is a statistical arbitrage. This raises concerns as it entails that deep hedging can include a speculative component aimed simply at exploiting the structure of the risk measure guiding the hedging optimisation problem. We test whether such finding remains true in a GARCH-based market model, which is an illustrative case departing from complete market dynamics. We observe that the difference between deep hedging and delta hedging is a speculative overlay if the risk measure considered does not put sufficient relative weight on adverse outcomes. Nevertheless, a suitable choice of risk measure can prevent the deep hedging agent from engaging in speculation.","url_abs":"https://arxiv.org/abs/2407.14736v3","url_pdf":"https://arxiv.org/pdf/2407.14736v3.pdf","source":{"archive":"pwc-archive (Hugging Face), CC BY-SA 4.0","snapshot":"2025-07-28","licence_url":"https://creativecommons.org/licenses/by-sa/4.0/legalcode","row_kind":"abstracts"},"code_links":[{"paper_slug":"is-the-difference-between-deep-hedging-and","repo_url":"https://github.com/cpmendoza/DeepHedging_StatisticalArbitrage","is_official":1,"mentioned_in_paper":0,"mentioned_in_github":0,"framework":"none","reach":null}],"tasks":[{"task_slug":null,"task_name":"Position"}],"methods":[],"datasets_introduced":[],"methods_introduced":[],"results":[],"syntology":{"atlas_url":null,"mcp":null,"developers":"https://syntology.ai/developers"},"arxiv_metadata":null,"syntology_extracted_results":null}