This article discusses a new application of reinforcement learning: to the problem of hedging a portfolio of “over-the-counter” derivatives under under market frictions such as trading costs and liquidity constraints. It is an extended version of our recent work...

I document a sizeable bias that might arise when valuing out of the money American options via the Least Square Method proposed by Longstaff and Schwartz (2001). The key point of this algorithm is the regression-based estimate of the continuation value of an American option. If this regression...