Dynamic Hedging: Managing Vanilla and Exotic Options
Dynamic Hedging is the definitive source on derivatives 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.
The author discusses, in plain English, vital issues, including:
* The generalized 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 severe flaws in the value at risk method.
* New tools to detect risks, such as higher moment analysis, topography exposure, and nonparametric techniques.
* The path dependence of all options hedged dynamically
Dynamic Hedging is replete with helpful tools, market anecdotes, at-a-glance risk management rules distilling years of market lore, and important definitions. The book contains modules in which the fundamental mathematics of derivatives, such as the Brownian motion, Ito's lemma, the numeraire paradox, the Girsanov change of measure, and the Feynman-Kac solution are presented in intuitive practitioner's language.
Dynamic Hedging is an indispensable and definitive reference for market makers, academics, finance students, risk managers, and regulators.
The definitive book on options trading and risk management
"If pricing is a science and hedging is an art, Taleb is a virtuoso." --Bruno Dupire, Head of Swaps and Options Research, Paribas Capital Markets
"This is not merely the best book on how options trade, it is the only book." --Stan Jonas, Managing Director, FIMAT-Société Générale
"Dynamic Hedging bridges the gap between what the best traders know and what the best scholars can prove." --William Margrabe, President, The William Margrabe Group, Inc.
"The most comprehensive, insightful, intuitive work on the subject. It is instrumental for both beginning and experienced traders."--
"A tour de force. That rare find, a book of great practical and theoretical value. Taleb successfully bridges the gap between the academic and the real world. Interesting, provocative, well written. Each chapter worth a fortune to any current or prospective derivatives trader."--Victor Niederhoffer, Chairman, Niederhoffer Investments
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Dynamic hedging: managing vanilla and exotic optionsUser Review - Not Available - Book Verdict
If the dot-com bubble was an age of unabashed risk-taking, the prolonged hangover from that binge has fostered a period of risk aversion; this snappily titled volume is a detailed text of tools that ... Read full review
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Introduction Dynamic Hedging
Introduction to the Instruments
The Generalized Option
Market Making and Market Using
Liquidity and Liquidity Holes
Arbitrage and the Arbitrageurs
Volatility and Correlation
Barrier Options I
Double Barrier Options
Compound Choosers and Higher Order Options
Lookback and Asian Options
Gamma and Shadow Gamma
Vega and the Volatility Surf ace
Theta and Minor Greeks
The Greeks and Their Behavior
Fungibility Convergence and Stacking
Some Wrinkles of Option Markets
Bucketing and Topography
Beware the Distribution
Option Trading Concepts
Trading and Hedging Exotic Options