----------------------------------------------------------------------------------------------------

       Department of Systems Engineering and Engineering Management

                           The Chinese University of Hong Kong

----------------------------------------------------------------------------------------------------



Date: Thursday, September 12, 2024, 3:00 pm HKT

Venue: Room 201 (2/F), Yasumoto International Academic Park (YIA), The Chinese University of Hong Kong

Title: Hedging with linear regressions and neural networks

Speaker: Prof. Johannes Ruf, London School of Economics (LSE)



Abstract:

We study the use of neural networks as nonparametric estimation tools for the hedging of options. To this end, we design a network, named

HedgeNet, that directly outputs a hedging strategy given relevant features as input. This network is trained to minimise the hedging error

instead of the pricing error. Applied to end-of-day and tick prices of S&P 500 and Euro Stoxx 50 options, the network is able to reduce the

mean squared hedging error of the Black-Scholes benchmark significantly. We illustrate, however, that a similar benefit arises by a simple linear

regression model that incorporates the leverage effect. (Joint work with Weiguan Wang)



Biography:

Johannes Ruf is a full Professor at the London School of Economics (LSE), a visiting professor at CUHK Shenzhen, and a leading academic in mathematical finance. Prior to LSE, he was a Senior Research Fellow at the Oxford-Man Institute of Quantitative Finance and a Senior Lecturer at the University College London (UCL). Johannes was awarded his Ph.D. in Statistics at Columbia University in New York.



Johannes’ research interests include machine learning and portfolio theory. His work received several industry prizes including the ‘Morgan Stanley Prize for Excellence in Financial Markets’ and a Savvy Investor recognition for the ‘Best Factor Investing Papers of 2018.’ Johannes’ research was covered by Risk Magazine. He was a Fulbright scholar and won several teaching prizes at Columbia University and LSE. He coauthored numerous published research articles with practitioners and academics from different fields including Finance, Economics, and Operations Research.



Everyone is welcome to attend the talk!

SEEM-5201 Website: https://seminar.se.cuhk.edu.hk

Email: seem5201@se.cuhk.edu.hk