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STA 2536 Project - 3 (INDIVIDUAL)

Deep Hedging and Valuation with GRUs

This project builds on your project 2.  Using the same setup as in project 2, where you maximize the CVaR0 .1 over strategies. Now, however, you are to incorporate the past history of asset prices, your bank account process, and the previous position in the underlying asset using a GRU to encode this past information.

For example, if we use 2 lags and the current state to determine the delta position, we have the architecture shown in the figure below, where st  = (St , Mt , ∆t − 1 ). The FFN in the diagram may be, e.g., 5 layers with 16 nodes in each layer.

Compare and contrast the results when you use 0-lags, 1-lag, and 2-lags.