|Sub-sector||Quantitative Investment Strategies|
This strategy sells FX options with delta hedging until expiry to harvest the difference between the implied and realised volatility, i.e. the ‘volatility carry’. In many market conditions, including sideways markets, it can provide an attractive source of return. However, it is not without some downside risk.
The RL model learns market behaviour through trial and error using feedback from its own trading actions during the model training period. The real skill of applying machine learning in this context lies in the training of the model, by Macquarie, to ensure it takes the most relevant information and successfully encapsulates the current trading and market dynamics. This ensures it is as effective as possible in generating the best trading decisions in live scenarios, where the resulting signals can be easily interpreted by the team.
This application of RL in volatility strategies paves the way for its wider use in other systematic investment strategies, as Macquarie looks to build on the existing knowledge base and partner with clients to explore further opportunities.
Managing Partner at Protean Capital LLP