The Volatility Surface PDF Download

Author: Jim Gatheral
Publisher:
ISBN: 9781119202073
Category : Options (Finance)
Languages : en
Pages : 179

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Author: Emanuel Derman
Publisher: John Wiley & Sons
ISBN: 1118959183
Category : Business & Economics
Languages : en
Pages : 528

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Book Description
The Volatility Smile The Black-Scholes-Merton option model was the greatest innovation of 20th century finance, and remains the most widely applied theory in all of finance. Despite this success, the model is fundamentally at odds with the observed behavior of option markets: a graph of implied volatilities against strike will typically display a curve or skew, which practitioners refer to as the smile, and which the model cannot explain. Option valuation is not a solved problem, and the past forty years have witnessed an abundance of new models that try to reconcile theory with markets. The Volatility Smile presents a unified treatment of the Black-Scholes-Merton model and the more advanced models that have replaced it. It is also a book about the principles of financial valuation and how to apply them. Celebrated author and quant Emanuel Derman and Michael B. Miller explain not just the mathematics but the ideas behind the models. By examining the foundations, the implementation, and the pros and cons of various models, and by carefully exploring their derivations and their assumptions, readers will learn not only how to handle the volatility smile but how to evaluate and build their own financial models. Topics covered include: The principles of valuation Static and dynamic replication The Black-Scholes-Merton model Hedging strategies Transaction costs The behavior of the volatility smile Implied distributions Local volatility models Stochastic volatility models Jump-diffusion models The first half of the book, Chapters 1 through 13, can serve as a standalone textbook for a course on option valuation and the Black-Scholes-Merton model, presenting the principles of financial modeling, several derivations of the model, and a detailed discussion of how it is used in practice. The second half focuses on the behavior of the volatility smile, and, in conjunction with the first half, can be used for as the basis for a more advanced course.

Author: Jim Gatheral
Publisher: John Wiley & Sons
ISBN: 1118046455
Category : Business & Economics
Languages : en
Pages : 204

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Praise for The Volatility Surface "I'm thrilled by the appearance of Jim Gatheral's new book The Volatility Surface. The literature on stochastic volatility is vast, but difficult to penetrate and use. Gatheral's book, by contrast, is accessible and practical. It successfully charts a middle ground between specific examples and general models--achieving remarkable clarity without giving up sophistication, depth, or breadth." --Robert V. Kohn, Professor of Mathematics and Chair, Mathematical Finance Committee, Courant Institute of Mathematical Sciences, New York University "Concise yet comprehensive, equally attentive to both theory and phenomena, this book provides an unsurpassed account of the peculiarities of the implied volatility surface, its consequences for pricing and hedging, and the theories that struggle to explain it." --Emanuel Derman, author of My Life as a Quant "Jim Gatheral is the wiliest practitioner in the business. This very fine book is an outgrowth of the lecture notes prepared for one of the most popular classes at NYU's esteemed Courant Institute. The topics covered are at the forefront of research in mathematical finance and the author's treatment of them is simply the best available in this form." --Peter Carr, PhD, head of Quantitative Financial Research, Bloomberg LP Director of the Masters Program in Mathematical Finance, New York University "Jim Gatheral is an acknowledged master of advanced modeling for derivatives. In The Volatility Surface he reveals the secrets of dealing with the most important but most elusive of financial quantities, volatility." --Paul Wilmott, author and mathematician "As a teacher in the field of mathematical finance, I welcome Jim Gatheral's book as a significant development. Written by a Wall Street practitioner with extensive market and teaching experience, The Volatility Surface gives students access to a level of knowledge on derivatives which was not previously available. I strongly recommend it." --Marco Avellaneda, Director, Division of Mathematical Finance Courant Institute, New York University "Jim Gatheral could not have written a better book." --Bruno Dupire, winner of the 2006 Wilmott Cutting Edge Research Award Quantitative Research, Bloomberg LP

Author: Sebastien Bossu
Publisher: John Wiley & Sons
ISBN: 111877471X
Category : Business & Economics
Languages : en
Pages : 176

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Book Description
In Advanced Equity Derivatives: Volatility andCorrelation, Sébastien Bossu reviews and explains theadvanced concepts used for pricing and hedging equity exoticderivatives. Designed for financial modelers, option tradersand sophisticated investors, the content covers the most importanttheoretical and practical extensions of the Black-Scholesmodel. Each chapter includes numerous illustrations and a shortselection of problems, covering key topics such as impliedvolatility surface models, pricing with implied distributions,local volatility models, volatility derivatives, correlationmeasures, correlation trading, local correlation models andstochastic correlation. The author has a dual professional and academic background,making Advanced Equity Derivatives: Volatility andCorrelation the perfect reference for quantitative researchersand mathematically savvy finance professionals looking to acquirean in-depth understanding of equity exotic derivatives pricing andhedging.

Author: Matthias R. Fengler
Publisher: Springer Science & Business Media
ISBN: 3540305912
Category : Business & Economics
Languages : en
Pages : 232

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Book Description
This book offers recent advances in the theory of implied volatility and refined semiparametric estimation strategies and dimension reduction methods for functional surfaces. The first part is devoted to smile-consistent pricing approaches. The second part covers estimation techniques that are natural candidates to meet the challenges in implied volatility surfaces. Empirical investigations, simulations, and pictures illustrate the concepts.

Author: Lorenzo Bergomi
Publisher: CRC Press
ISBN: 1482244071
Category : Business & Economics
Languages : en
Pages : 520

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Book Description
Packed with insights, Lorenzo Bergomi's Stochastic Volatility Modeling explains how stochastic volatility is used to address issues arising in the modeling of derivatives, including:Which trading issues do we tackle with stochastic volatility? How do we design models and assess their relevance? How do we tell which models are usable and when does c

Author: Antonio Castagna
Publisher: John Wiley & Sons
ISBN: 0470754192
Category : Business & Economics
Languages : en
Pages : 324

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Book Description
The FX options market represents one of the most liquid and strongly competitive markets in the world, and features many technical subtleties that can seriously harm the uninformed and unaware trader. This book is a unique guide to running an FX options book from the market maker perspective. Striking a balance between mathematical rigour and market practice and written by experienced practitioner Antonio Castagna, the book shows readers how to correctly build an entire volatility surface from the market prices of the main structures. Starting with the basic conventions related to the main FX deals and the basic traded structures of FX options, the book gradually introduces the main tools to cope with the FX volatility risk. It then goes on to review the main concepts of option pricing theory and their application within a Black-Scholes economy and a stochastic volatility environment. The book also introduces models that can be implemented to price and manage FX options before examining the effects of volatility on the profits and losses arising from the hedging activity. Coverage includes: how the Black-Scholes model is used in professional trading activity the most suitable stochastic volatility models sources of profit and loss from the Delta and volatility hedging activity fundamental concepts of smile hedging major market approaches and variations of the Vanna-Volga method volatility-related Greeks in the Black-Scholes model pricing of plain vanilla options, digital options, barrier options and the less well known exotic options tools for monitoring the main risks of an FX options’ book The book is accompanied by a CD Rom featuring models in VBA, demonstrating many of the approaches described in the book.

Author: Iain J. Clark
Publisher: John Wiley & Sons
ISBN: 0470683686
Category : Business & Economics
Languages : en
Pages : 308

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Book Description
This book covers foreign exchange options from the point of view of the finance practitioner. It contains everything a quant or trader working in a bank or hedge fund would need to know about the mathematics of foreign exchange—not just the theoretical mathematics covered in other books but also comprehensive coverage of implementation, pricing and calibration. With content developed with input from traders and with examples using real-world data, this book introduces many of the more commonly requested products from FX options trading desks, together with the models that capture the risk characteristics necessary to price these products accurately. Crucially, this book describes the numerical methods required for calibration of these models – an area often neglected in the literature, which is nevertheless of paramount importance in practice. Thorough treatment is given in one unified text to the following features: Correct market conventions for FX volatility surface construction Adjustment for settlement and delayed delivery of options Pricing of vanillas and barrier options under the volatility smile Barrier bending for limiting barrier discontinuity risk near expiry Industry strength partial differential equations in one and several spatial variables using finite differences on nonuniform grids Fourier transform methods for pricing European options using characteristic functions Stochastic and local volatility models, and a mixed stochastic/local volatility model Three-factor long-dated FX model Numerical calibration techniques for all the models in this work The augmented state variable approach for pricing strongly path-dependent options using either partial differential equations or Monte Carlo simulation Connecting mathematically rigorous theory with practice, this is the essential guide to foreign exchange options in the context of the real financial marketplace.

Author: Patrick Boyle
Publisher: Walter de Gruyter GmbH & Co KG
ISBN: 1547401214
Category : Business & Economics
Languages : en
Pages : 298

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Book Description
Trading and Pricing Financial Derivatives is an introduction to the world of futures, options, and swaps. Investors who are interested in deepening their knowledge of derivatives of all kinds will find this book to be an invaluable resource. The book is also useful in a very applied course on derivative trading. The authors delve into the history of options pricing; simple strategies of options trading; binomial tree valuation; Black-Scholes option valuation; option sensitivities; risk management and interest rate swaps in this immensely informative yet easy to comprehend work. Using their vast working experience in the financial markets at international investment banks and hedge funds since the late 1990s and teaching derivatives and investment courses at the Master's level, Patrick Boyle and Jesse McDougall put forth their knowledge and expertise in clearly explained concepts. This book does not presuppose advanced mathematical knowledge, though it is presented for completeness for those that may benefit from it, and is designed for a general audience, suitable for beginners through to those with intermediate knowledge of the subject.

Author: Euan Sinclair
Publisher: John Wiley & Sons
ISBN: 1118045297
Category : Business & Economics
Languages : en
Pages : 228

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Book Description
In Volatility Trading, Sinclair offers you a quantitative model for measuring volatility in order to gain an edge in your everyday option trading endeavors. With an accessible, straightforward approach. He guides traders through the basics of option pricing, volatility measurement, hedging, money management, and trade evaluation. In addition, Sinclair explains the often-overlooked psychological aspects of trading, revealing both how behavioral psychology can create market conditions traders can take advantage of-and how it can lead them astray. Psychological biases, he asserts, are probably the drivers behind most sources of edge available to a volatility trader. Your goal, Sinclair explains, must be clearly defined and easily expressed-if you cannot explain it in one sentence, you probably aren't completely clear about what it is. The same applies to your statistical edge. If you do not know exactly what your edge is, you shouldn't trade. He shows how, in addition to the numerical evaluation of a potential trade, you should be able to identify and evaluate the reason why implied volatility is priced where it is, that is, why an edge exists. This means it is also necessary to be on top of recent news stories, sector trends, and behavioral psychology. Finally, Sinclair underscores why trades need to be sized correctly, which means that each trade is evaluated according to its projected return and risk in the overall context of your goals. As the author concludes, while we also need to pay attention to seemingly mundane things like having good execution software, a comfortable office, and getting enough sleep, it is knowledge that is the ultimate source of edge. So, all else being equal, the trader with the greater knowledge will be the more successful. This book, and its companion CD-ROM, will provide that knowledge. The CD-ROM includes spreadsheets designed to help you forecast volatility and evaluate trades together with simulation engines.