Skip to content

Taming the Greeks: Option Portfolios with Inductive Biases

Sep 2026 · 0 citations · 36 references
Economics Computer Science

TL;DR

An end-to-end deep learning framework for systematic options trading that directly embeds hedging behavior through explicit control of portfolio-level risk exposures and jointly optimizes risk-adjusted returns and targeted risk constraints in a single learning problem is presented.

Abstract

We present an end-to-end deep learning framework for systematic options trading that directly embeds hedging behavior through explicit control of portfolio-level risk exposures. While neural networks trained to optimize risk-adjusted performance have been shown to outperform traditional rules-based strategies, such approaches remain agnostic to the sensitivities of the resulting portfolios with respect to specific underlying risk factors. We propose a general training objective that combines a performance-driven loss with a differentiable risk-sensitivity penalty, enforcing neutrality to selected risk dimensions. Unlike reinforcement learning methods that approximate optimal hedging policies via simulated market dynamics, our framework operates entirely on historical data and jointly optimizes risk-adjusted returns and targeted risk constraints in a single learning problem. We instantiate the framework on static delta-neutral straddle portfolios with the penalty directed at first-order directional exposure, and evaluate two penalty variants -- an exposure-normalized penalty and a Greek-ratio drift penalty. Empirical results on Nasdaq 100 equity options demonstrate that appropriately calibrated regularization simultaneously improves out-of-sample risk-adjusted performance relative to an unregularized baseline while reducing realized directional exposure.

View source

Similar papers

#artificial intelligence Conference Open access Jun 2018

Gibson Env: Real-World Perception for Embodied Agents

This paper investigates developing real-world perception for active agents, proposes Gibson Environment for this purpose, and showcases a set of perceptual tasks learned therein.

F. Xia, Amir Zamir, Zhi-Yang He et al. · 1,069 citations · ⚡112
#machine learning Review Open access Oct 2014

Software development in startup companies: A systematic mapping study

The results indicate that software engineering work practices are chosen opportunistically, adapted and configured to provide value under the constrains imposed by the startup context.

Nicolò Paternoster, Carmine Giardino, M. Unterkalmsteiner et al. · 394 citations · ⚡54

Diffusion models as plug-and-play priors

The possibility of inferring high-dimensional data inference in a model that consists of a prior and an auxiliary differentiable constraint given some additional information is considered, thereby allowing a range of potential applications in adapting models to new domains and tasks.

Alexandros Graikos, Esmeralda S. Whitammer, N. Jojic et al. · 316 citations · ⚡15

Trajectory Balance: Improved Credit Assignment in GFlowNets

It is proved that any global minimizer of the trajectory balance objective can define a policy that samples exactly from the target distribution, and empirically demonstrate the benefits of the trajectories balance objective for GFlowNet convergence, diversity of generated samples, and robustness to long action sequenc...

Esmeralda S. Whitammer, Moksh Jain, Emmanuel Bengio et al. · 302 citations · ⚡60

KTO: Model Alignment as Prospect Theoretic Optimization

This work proposes a HALO that directly maximizes the utility of generations instead of maximizing the log-likelihood of preferences, and suggests that the best loss depends on the inductive biases most appropriate for a given setting, an oft-overlooked consideration.

Kawin Ethayarajh, Winnie Xu, Niklas Muennighoff et al. · 195 citations · ⚡28

Related blog posts

MIT News · Artificial Intelligence Oct 23, 2026

Q&A: How AI came to model the “messy” human mind

Assistant Professor Benjamin Lindquist studies how engineers deliberately injected randomness into early AI, giving rise to deep-learning models that sometimes hallucinate.

We use cookies to run the site and, with your consent, for analytics and to show ads. See our Cookie Policy.