arXiv subjects

Hans Buehler

Publications and source records attributed to Hans Buehler.

11 recordsLinked to original sources

arXiv2026

DYSANOS Generative Dynamic Smooth Arbitrage-free Non-parametric Option Surfaces

This article presents with DYSANOS the first generative market model for smooth SANOS option surfaces for all strikes and expiries which are free of static arbitrage. Our model is designed to generate entire paths of daily spot and option prices for years in the future. We present a robust and useful if somewhat simplistic baseline hidden state generative model in the form of an AR(1) model. We discuss model setup, data pipeline, and training and investigate numerical resence of dynamic arbitrage. We illustrate model performance on Option Metrics' IvyDB S\&P Index data from 2020 to~2025 and compare it to a pure implied-vol PCA model.

q-fin.MF↗

arXiv2026

PIVOT: Bridging Black-Scholes Implied-Volatility and Price Objectives via Differentiable J\"ackel Operator

Modern option-learning systems operate in two coordinates: price space, where markets quote and no-arbitrage constraints are most naturally enforced, and implied volatility (IV) space, where volatility surfaces are smoothed, regularized, and evaluated. The bottleneck is interface, not approximation: J\"ackel's seminal "Let's Be Rational" (LBR) solver already inverts the Black-Scholes price to machine precision efficiently. What is missing is a differentiable layer that preserves LBR in the forward pass and avoids backpropagating through its branch logic. Such a layer must also confront the unavoidable singularity of the inverse map in the low-vega regime, where the sensitivity 1/vega diverges as vega -> 0. We close this gap with PIVOT, the Price-Implied-Volatility Objective Translator. PIVOT keeps the LBR forward pass intact and supplies the backward pass by implicit differentiation through the smooth Black-Scholes/Black-76 price map, with an explicit gating contract: invalid domains return NaN, well-conditioned rows receive the exact 1/vega gradient, and low-vega rows are attenuated rather than silently regularized. On a single H100, a fused Triton kernel reaches 1.79e9 IV/s at machine precision (9.3e-14 max relative error vs. the reference C solver); end-to-end label generation sustains 48.9M/s on synthetic chains and 16.6M/s on SPX OptionMetrics. In a HyperIV-style one-day reproduction on SPX, PIVOT-augmented objectives Pareto-dominate the baselines, reducing held-out price MAE by up to 43.4% and the strongest three-seed gated objective improving price MAE by 38.8% and IV MAE by 21.3% jointly; cross-asset results on RUT, VIX, and NDX show directional price-MAE gains of 40.1%, 24.2%, and 16.7%, while an ungated IV-roundtrip control collapses to a degenerate near-zero surface, confirming the gate as a correctness contract rather than a tuning knob.

q-fin.CP↗

arXiv2026

SANOS Smooth strictly Arbitrage-free Non-parametric Option Surfaces

We present a simple, numerically efficient but highly flexible non-parametric method to construct representations of option price surfaces which are both smooth and strictly arbitrage-free across time and strike. The method can be viewed as a smooth generalization of the widely-known linear interpolation scheme, and retains the simplicity and transparency of that baseline. Calibration of the model to observed market quotes is formulated as a linear program, allowing bid-ask spreads to be incorporated directly via linear penalties or inequalities, and delivering materially lower computational cost than most of the currently available implied-volatility surface fitting routines. As a further contribution, we derive an equivalent parameterization of the proposed surface in terms of strictly positive "discrete local volatility" variables. This yields, to our knowledge, the first construction of smooth, strictly arbitrage-free option price surfaces while requiring only trivial parameter constraints (positivity). We illustrate the approach using S&P 500 index options

q-fin.CP↗

arXiv2025

Uncertainty-Aware Strategies: A Model-Agnostic Framework for Robust Financial Optimization through Subsampling

This paper addresses the challenge of model uncertainty in quantitative finance, where decisions in portfolio allocation, derivative pricing, and risk management rely on estimating stochastic models from limited data. In practice, the unavailability of the true probability measure forces reliance on an empirical approximation, and even small misestimations can lead to significant deviations in decision quality. Building on the framework of Klibanoff et al. (2005), we enhance the conventional objective - whether this is expected utility in an investing context or a hedging metric - by superimposing an outer "uncertainty measure", motivated by traditional monetary risk measures, on the space of models. In scenarios where a natural model distribution is lacking or Bayesian methods are impractical, we propose an ad hoc subsampling strategy, analogous to bootstrapping in statistical finance and related to mini-batch sampling in deep learning, to approximate model uncertainty. To address the quadratic memory demands of naive implementations, we also present an adapted stochastic gradient descent algorithm that enables efficient parallelization. Through analytical, simulated, and empirical studies - including multi-period, real data and high-dimensional examples - we demonstrate that uncertainty measures outperform traditional mixture of measures strategies and our model-agnostic subsampling-based approach not only enhances robustness against model risk but also achieves performance comparable to more elaborate Bayesian methods.

q-fin.CP↗

arXiv2023

Prime Match: A Privacy-Preserving Inventory Matching System

Inventory matching is a standard mechanism/auction for trading financial stocks by which buyers and sellers can be paired. In the financial world, banks often undertake the task of finding such matches between their clients. The related stocks can be traded without adversely impacting the market price for either client. If matches between clients are found, the bank can offer the trade at advantageous rates. If no match is found, the parties have to buy or sell the stock in the public market, which introduces additional costs. A problem with the process as it is presently conducted is that the involved parties must share their order to buy or sell a particular stock, along with the intended quantity (number of shares), to the bank. Clients worry that if this information were to leak somehow, then other market participants would become aware of their intentions and thus cause the price to move adversely against them before their transaction finalizes. We provide a solution, Prime Match, that enables clients to match their orders efficiently with reduced market impact while maintaining privacy. In the case where there are no matches, no information is revealed. Our main cryptographic innovation is a two-round secure linear comparison protocol for computing the minimum between two quantities without preprocessing and with malicious security, which can be of independent interest. We report benchmarks of our Prime Match system, which runs in production and is adopted by J.P. Morgan. The system is designed utilizing a star topology network, which provides clients with a centralized node (the bank) as an alternative to the idealized assumption of point-to-point connections, which would be impractical and undesired for the clients to implement in reality. Prime Match is the first secure multiparty computation solution running live in the traditional financial world.

cs.CR↗

arXiv2022

Deep Hedging: Continuous Reinforcement Learning for Hedging of General Portfolios across Multiple Risk Aversions

We present a method for finding optimal hedging policies for arbitrary initial portfolios and market states. We develop a novel actor-critic algorithm for solving general risk-averse stochastic control problems and use it to learn hedging strategies across multiple risk aversion levels simultaneously. We demonstrate the effectiveness of the approach with a numerical example in a stochastic volatility environment.

q-fin.CP↗

arXiv2022

Deep Bellman Hedging

We present an actor-critic-type reinforcement learning algorithm for solving the problem of hedging a portfolio of financial instruments such as securities and over-the-counter derivatives using purely historic data. The key characteristics of our approach are: the ability to hedge with derivatives such as forwards, swaps, futures, options; incorporation of trading frictions such as trading cost and liquidity constraints; applicability for any reasonable portfolio of financial instruments; realistic, continuous state and action spaces; and formal risk-adjusted return objectives. Most importantly, the trained model provides an optimal hedge for arbitrary initial portfolios and market states without the need for re-training. We also prove existence of finite solutions to our Bellman equation, and show the relation to our vanilla Deep Hedging approach

q-fin.CP↗

arXiv2022

Deep Hedging: Learning to Remove the Drift under Trading Frictions with Minimal Equivalent Near-Martingale Measures

We present a machine learning approach for finding minimal equivalent martingale measures for markets simulators of tradable instruments, e.g. for a spot price and options written on the same underlying. We extend our results to markets with frictions, in which case we find "near-martingale measures" under which the prices of hedging instruments are martingales within their bid/ask spread. By removing the drift, we are then able to learn using Deep Hedging a "clean" hedge for an exotic payoff which is not polluted by the trading strategy trying to make money from statistical arbitrage opportunities. We correspondingly highlight the robustness of this hedge vs estimation error of the original market simulator. We discuss applications to two market simulators.

q-fin.CP↗

arXiv2021

Multi-Asset Spot and Option Market Simulation

We construct realistic spot and equity option market simulators for a single underlying on the basis of normalizing flows. We address the high-dimensionality of market observed call prices through an arbitrage-free autoencoder that approximates efficient low-dimensional representations of the prices while maintaining no static arbitrage in the reconstructed surface. Given a multi-asset universe, we leverage the conditional invertibility property of normalizing flows and introduce a scalable method to calibrate the joint distribution of a set of independent simulators while preserving the dynamics of each simulator. Empirical results highlight the goodness of the calibrated simulators and their fidelity.

q-fin.CP↗

arXiv2021

Deep Hedging: Learning Risk-Neutral Implied Volatility Dynamics

We present a numerically efficient approach for learning a risk-neutral measure for paths of simulated spot and option prices up to a finite horizon under convex transaction costs and convex trading constraints. This approach can then be used to implement a stochastic implied volatility model in the following two steps: 1. Train a market simulator for option prices, as discussed for example in our recent; 2. Find a risk-neutral density, specifically the minimal entropy martingale measure. The resulting model can be used for risk-neutral pricing, or for Deep Hedging in the case of transaction costs or trading constraints. To motivate the proposed approach, we also show that market dynamics are free from "statistical arbitrage" in the absence of transaction costs if and only if they follow a risk-neutral measure. We additionally provide a more general characterization in the presence of convex transaction costs and trading constraints. These results can be seen as an analogue of the fundamental theorem of asset pricing for statistical arbitrage under trading frictions and are of independent interest.

q-fin.CP↗

arXiv2019

Deep Hedging: Learning to Simulate Equity Option Markets

We construct realistic equity option market simulators based on generative adversarial networks (GANs). We consider recurrent and temporal convolutional architectures, and assess the impact of state compression. Option market simulators are highly relevant because they allow us to extend the limited real-world data sets available for the training and evaluation of option trading strategies. We show that network-based generators outperform classical methods on a range of benchmark metrics, and adversarial training achieves the best performance. Our work demonstrates for the first time that GANs can be successfully applied to the task of generating multivariate financial time series.

q-fin.CP↗