JP Morgan turns to machine learning for options hedging
New models sidestep Black-Scholes and could slash hedging costs for some derivatives by up to 80%
JP Morgan’s London headquarters, Canary Wharf
JP Morgan is using machine learning to automate the hedging of some equity options, a move that one quant calls a “game-changer”.
The bank started using machine learning to hedge a portion of its index vanilla flow book last year. Since then, it has been able to hedge its exposures faster, and quote higher volumes as a result.
“The real advantage is we are able to increase volumes quoted – because we are faster,” says Hans Buehler, global head of equities analytics, automation and
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