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- Product code: 3768
- ISBN: 0471152803,
ISBN13: 9780471152804,
506 pages, hardback
Published by John Wiley & Sons, 1st edition, 1997
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Description of Dynamic Hedging |
Dynamic Hedging is the definitive source on derivative risk. It provides a real-world methodology for managing portfolios containing any nonlinear security. It presents risks from the vantage point of the option market maker and arbitrage operator. The only book about derivatives risk written by an experienced trader with theoretical training, it remolds option theory to fit the practitioner's environment. As a larger share of market exposure cannot be properly captured by mathematical models, noted option arbitrageur Nassim Taleb uniquely covers both on-model and off-model derivatives risks.
Vital issues include:
- The generalised option, which encompasses all instruments with convex payoff, including a trader's potential bonus.
- The techniques for trading exotic options, including binary, barrier, multiasset, and Asian options, as well as methods to take into account the wrinkles of actual, non-bellshaped distributions.
- Market dynamics viewed from the practitioner's vantage point, including liquidity holes, portfolio insurance, squeezes, fat tails, volatility surface, GARCH, curve evolution, static option replication, correlation instability, Pareto-Levy, regime shifts, autocorrelation of price changes, and the sever flaws in the value at risk method.
- New tools to detect risks, such as higher moment analysis, topography exposure, and nonparametric techniques.
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Contents of Dynamic Hedging |
PART ONE: Markets, Instruments, People
1. Introduction to the Instruments
2. The Generalised Option
3. Market Making and Market Using
4. Liquidity and Liquidity Holes
5. Arbitrage and the Arbitrageurs
6. Volatility and Correlation
PART TWO: Measuring Option Risks
7. Adapting Black-Scholes-Merton: The Delta
8. Gamma and Shadow
9. Vega and the Volatility Surface
10. Theta and Minor Greeks
11. The Greeks and Their Behaviour
12. Fungibility, Convergence, and Stacking
13. Some Wrinkles of Option Markets
14. Bucketing and Topography
15. Beware The Distribution
16. Option Trading Concepts
PART THREE: Trading and Hedging Exotic Options
17. Binary Options: European Style
18. Binary Options: American Style
19. Barrier Options (1)
20. Barrier Options (2)
21. Compound, Choosers, and Higher Order Options
22. Multiasset Options
23. Minor Exotics: Lookback and Asian Options
PART FOUR: Modules
A. Brownian Motion on a Spreadsheet, a Tutorial
B. Risk Neutrality Explained
C. Numeraire Relativity and the Two-Country Paradox
D. Correlation Triangles: A Graphical Case Study
E. The Value - at - Risk
F. Probabilistic Rankings in Arbitrage
G. Option Pricing
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