Quadratic Volatility Smiles

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The Volatility Smile

Author : Emanuel Derman
Publisher : John Wiley & Sons
ISBN 13 : 1118959183
Total Pages : 537 pages
Book Rating : 4.1/5 (189 download)

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Book Synopsis The Volatility Smile by : Emanuel Derman

Download or read book The Volatility Smile written by Emanuel Derman and published by John Wiley & Sons. This book was released on 2016-08-15 with total page 537 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Volatility and Correlation

Author : Riccardo Rebonato
Publisher : John Wiley & Sons
ISBN 13 : 0470091401
Total Pages : 864 pages
Book Rating : 4.4/5 (7 download)

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Book Synopsis Volatility and Correlation by : Riccardo Rebonato

Download or read book Volatility and Correlation written by Riccardo Rebonato and published by John Wiley & Sons. This book was released on 2005-07-08 with total page 864 pages. Available in PDF, EPUB and Kindle. Book excerpt: In Volatility and Correlation 2nd edition: The Perfect Hedger and the Fox, Rebonato looks at derivatives pricing from the angle of volatility and correlation. With both practical and theoretical applications, this is a thorough update of the highly successful Volatility & Correlation – with over 80% new or fully reworked material and is a must have both for practitioners and for students. The new and updated material includes a critical examination of the ‘perfect-replication’ approach to derivatives pricing, with special attention given to exotic options; a thorough analysis of the role of quadratic variation in derivatives pricing and hedging; a discussion of the informational efficiency of markets in commonly-used calibration and hedging practices. Treatment of new models including Variance Gamma, displaced diffusion, stochastic volatility for interest-rate smiles and equity/FX options. The book is split into four parts. Part I deals with a Black world without smiles, sets out the author’s ‘philosophical’ approach and covers deterministic volatility. Part II looks at smiles in equity and FX worlds. It begins with a review of relevant empirical information about smiles, and provides coverage of local-stochastic-volatility, general-stochastic-volatility, jump-diffusion and Variance-Gamma processes. Part II concludes with an important chapter that discusses if and to what extent one can dispense with an explicit specification of a model, and can directly prescribe the dynamics of the smile surface. Part III focusses on interest rates when the volatility is deterministic. Part IV extends this setting in order to account for smiles in a financially motivated and computationally tractable manner. In this final part the author deals with CEV processes, with diffusive stochastic volatility and with Markov-chain processes. Praise for the First Edition: “In this book, Dr Rebonato brings his penetrating eye to bear on option pricing and hedging.... The book is a must-read for those who already know the basics of options and are looking for an edge in applying the more sophisticated approaches that have recently been developed.” —Professor Ian Cooper, London Business School “Volatility and correlation are at the very core of all option pricing and hedging. In this book, Riccardo Rebonato presents the subject in his characteristically elegant and simple fashion...A rare combination of intellectual insight and practical common sense.” —Anthony Neuberger, London Business School

The Volatility Smile

Author : Emanuel Derman
Publisher : John Wiley & Sons
ISBN 13 : 1118959167
Total Pages : 528 pages
Book Rating : 4.1/5 (189 download)

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Book Synopsis The Volatility Smile by : Emanuel Derman

Download or read book The Volatility Smile written by Emanuel Derman and published by John Wiley & Sons. This book was released on 2016-09-06 with total page 528 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Semiparametric Modeling of Implied Volatility

Author : Matthias R. Fengler
Publisher : Springer Science & Business Media
ISBN 13 : 3540305912
Total Pages : 232 pages
Book Rating : 4.5/5 (43 download)

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Book Synopsis Semiparametric Modeling of Implied Volatility by : Matthias R. Fengler

Download or read book Semiparametric Modeling of Implied Volatility written by Matthias R. Fengler and published by Springer Science & Business Media. This book was released on 2005-12-19 with total page 232 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

XVA

Author : Andrew Green
Publisher : John Wiley & Sons
ISBN 13 : 111855678X
Total Pages : 548 pages
Book Rating : 4.1/5 (185 download)

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Book Synopsis XVA by : Andrew Green

Download or read book XVA written by Andrew Green and published by John Wiley & Sons. This book was released on 2015-12-14 with total page 548 pages. Available in PDF, EPUB and Kindle. Book excerpt: Thorough, accessible coverage of the key issues in XVA XVA – Credit, Funding and Capital Valuation Adjustments provides specialists and non-specialists alike with an up-to-date and comprehensive treatment of Credit, Debit, Funding, Capital and Margin Valuation Adjustment (CVA, DVA, FVA, KVA and MVA), including modelling frameworks as well as broader IT engineering challenges. Written by an industry expert, this book navigates you through the complexities of XVA, discussing in detail the very latest developments in valuation adjustments including the impact of regulatory capital and margin requirements arising from CCPs and bilateral initial margin. The book presents a unified approach to modelling valuation adjustments including credit risk, funding and regulatory effects. The practical implementation of XVA models using Monte Carlo techniques is also central to the book. You'll also find thorough coverage of how XVA sensitivities can be accurately measured, the technological challenges presented by XVA, the use of grid computing on CPU and GPU platforms, the management of data, and how the regulatory framework introduced under Basel III presents massive implications for the finance industry. Explores how XVA models have developed in the aftermath of the credit crisis The only text to focus on the XVA adjustments rather than the broader topic of counterparty risk. Covers regulatory change since the credit crisis including Basel III and the impact regulation has had on the pricing of derivatives. Covers the very latest valuation adjustments, KVA and MVA. The author is a regular speaker and trainer at industry events, including WBS training, Marcus Evans, ICBI, Infoline and RISK If you're a quantitative analyst, trader, banking manager, risk manager, finance and audit professional, academic or student looking to expand your knowledge of XVA, this book has you covered.

The Volatility Surface

Author : Jim Gatheral
Publisher :
ISBN 13 : 9781119202073
Total Pages : 179 pages
Book Rating : 4.2/5 (2 download)

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Book Synopsis The Volatility Surface by : Jim Gatheral

Download or read book The Volatility Surface written by Jim Gatheral and published by . This book was released on 2006 with total page 179 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Volatility and Time Series Econometrics

Author : Mark Watson
Publisher : Oxford University Press
ISBN 13 : 0199549494
Total Pages : 432 pages
Book Rating : 4.1/5 (995 download)

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Book Synopsis Volatility and Time Series Econometrics by : Mark Watson

Download or read book Volatility and Time Series Econometrics written by Mark Watson and published by Oxford University Press. This book was released on 2010-02-11 with total page 432 pages. Available in PDF, EPUB and Kindle. Book excerpt: A volume that celebrates and develops the work of Nobel Laureate Robert Engle, it includes original contributions from some of the world's leading econometricians that further Engle's work in time series economics

Currency Options And Exchange Rate Economics

Author : Zhaohui Chen
Publisher : World Scientific
ISBN 13 : 9814499161
Total Pages : 218 pages
Book Rating : 4.8/5 (144 download)

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Book Synopsis Currency Options And Exchange Rate Economics by : Zhaohui Chen

Download or read book Currency Options And Exchange Rate Economics written by Zhaohui Chen and published by World Scientific. This book was released on 1998-04-21 with total page 218 pages. Available in PDF, EPUB and Kindle. Book excerpt: This volume is a collection of classical and recent empirical studies of currency options and their implications for issues of exchange rate economics, such as exchange rate risk premium, volatility, market expectations, and credibility of exchange rate regimes. It contains applications on how to extract useful information from option market data for financial forecasting policy purposes. The subjects are discussed in a self-contained, user-friendly format, with introductory chapters on currency option theory and currency option markets.The book can be used as supplementary reading for graduate finance and international economics courses, as training material for central bank and regulatory authorities, or as a reference book for financial analysts.

FX Options and Smile Risk

Author : Antonio Castagna
Publisher : John Wiley & Sons
ISBN 13 : 0470684933
Total Pages : 324 pages
Book Rating : 4.4/5 (76 download)

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Book Synopsis FX Options and Smile Risk by : Antonio Castagna

Download or read book FX Options and Smile Risk written by Antonio Castagna and published by John Wiley & Sons. This book was released on 2010-02-12 with total page 324 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Option Volatility & Pricing: Advanced Trading Strategies and Techniques

Author : Sheldon Natenberg
Publisher : McGraw Hill Professional
ISBN 13 : 155738486X
Total Pages : 485 pages
Book Rating : 4.5/5 (573 download)

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Book Synopsis Option Volatility & Pricing: Advanced Trading Strategies and Techniques by : Sheldon Natenberg

Download or read book Option Volatility & Pricing: Advanced Trading Strategies and Techniques written by Sheldon Natenberg and published by McGraw Hill Professional. This book was released on 1994-08 with total page 485 pages. Available in PDF, EPUB and Kindle. Book excerpt: Provides a thorough discussion of volatility, the most important aspect of options trading. Shows how to identify mispriced options and to construct volatility and "delta neutral" spreads.

Financial Mathematics, Derivatives and Structured Products

Author : Raymond H. Chan
Publisher : Springer
ISBN 13 : 9811336962
Total Pages : 397 pages
Book Rating : 4.8/5 (113 download)

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Book Synopsis Financial Mathematics, Derivatives and Structured Products by : Raymond H. Chan

Download or read book Financial Mathematics, Derivatives and Structured Products written by Raymond H. Chan and published by Springer. This book was released on 2019-02-27 with total page 397 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book introduces readers to the financial markets, derivatives, structured products and how the products are modelled and implemented by practitioners. In addition, it equips readers with the necessary knowledge of financial markets needed in order to work as product structurers, traders, sales or risk managers. As the book seeks to unify the derivatives modelling and the financial engineering practice in the market, it will be of interest to financial practitioners and academic researchers alike. Further, it takes a different route from the existing financial mathematics books, and will appeal to students and practitioners with or without a scientific background. The book can also be used as a textbook for the following courses: • Financial Mathematics (undergraduate level) • Stochastic Modelling in Finance (postgraduate level) • Financial Markets and Derivatives (undergraduate level) • Structured Products and Solutions (undergraduate/postgraduate level)

Virtual Barrels

Author : Ilia Bouchouev
Publisher : Springer Nature
ISBN 13 : 3031361512
Total Pages : 345 pages
Book Rating : 4.0/5 (313 download)

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Book Synopsis Virtual Barrels by : Ilia Bouchouev

Download or read book Virtual Barrels written by Ilia Bouchouev and published by Springer Nature. This book was released on 2024-01-05 with total page 345 pages. Available in PDF, EPUB and Kindle. Book excerpt: The global oil market is no longer solely influenced by the supply and demand of physical oil barrels. In today's landscape, financial barrels traded by hedge funds using quantitative algorithms and dealers managing large portfolios of oil derivatives are equally crucial in determining the price of oil. This book offers a fascinating insight into the world of oil derivatives, exploring the quantitative models and trading strategies used by professional market participants. With a focus on oil options and volatility trading, the reader is taken on a journey through the story of this market, narrated by one of its pioneers who managed a highly successful trading business for almost a quarter of a century. Bridging the fields of energy economics and mathematical finance, this book demonstrates how the science of trading can unearth unique opportunities in the oil market. Written for aspiring quantitative traders and academic researchers alike, it offers a rare glimpse into the opaque and secretive world of oil derivatives, showcasing how it operates in practice.

Convergent Cognitive Information Technologies

Author : Vladimir Sukhomlin
Publisher : Springer Nature
ISBN 13 : 303037436X
Total Pages : 423 pages
Book Rating : 4.0/5 (33 download)

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Book Synopsis Convergent Cognitive Information Technologies by : Vladimir Sukhomlin

Download or read book Convergent Cognitive Information Technologies written by Vladimir Sukhomlin and published by Springer Nature. This book was released on 2020-01-31 with total page 423 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book constitutes the refereed proceedings of the Third International Conference on Convergent Cognitive Information Technologies, Convergent 2018, held in Moscow, Russia, in December 2018. The 26 revised full papers and 9 short papers were carefully reviewed and selected from 147 submissions. The papers of this volume are organized in topical sections on theoretical questions of computer science, computational mathematics, computer science and cognitive information technologies; cognitive information technologies in control systems; big data and applications; the Internet of Things (IoT): standards, communication and information technologies, network applications; smart cities: standards, cognitive-information technologies and their applications.- cognitive information technologies in the digital economics.- digital transformation of transport.

Managing Currency Options in Financial Institutions

Author : Yat-Fai Lam
Publisher : Routledge
ISBN 13 : 1317387252
Total Pages : 118 pages
Book Rating : 4.3/5 (173 download)

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Book Synopsis Managing Currency Options in Financial Institutions by : Yat-Fai Lam

Download or read book Managing Currency Options in Financial Institutions written by Yat-Fai Lam and published by Routledge. This book was released on 2017-09-19 with total page 118 pages. Available in PDF, EPUB and Kindle. Book excerpt: The book introduces how we can manage currency options with the Vanna-Volga method. It describes the underlying theories and applications of the Vanna-Volga method in managing currency options of a financial institution, conforming to the Basel III regulatory requirements which demand a high consistency between the valuation and market risk calculation methodologies of financial instruments. The book illustrates with technical details to shed understanding on the major applications, including valuation, volatility recovery, dynamic portfolio replication and value-at-risk. Those who study finance, risk management, quantitative finance or similar areas, as well as practitioners who wish to learn how to valuate, hedge and manage the market risk of currency options with more advanced models and techniques will find the book of invaluable use.

The Statistical Mechanics of Financial Markets

Author : Johannes Voit
Publisher : Springer Science & Business Media
ISBN 13 : 3662051257
Total Pages : 298 pages
Book Rating : 4.6/5 (62 download)

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Book Synopsis The Statistical Mechanics of Financial Markets by : Johannes Voit

Download or read book The Statistical Mechanics of Financial Markets written by Johannes Voit and published by Springer Science & Business Media. This book was released on 2013-04-17 with total page 298 pages. Available in PDF, EPUB and Kindle. Book excerpt: This textbook describes parallels between statistical physics and finance - both those established in the 100-year-long interaction between these disciplines, as well as new research results on capital markets. The random walk, well known in physics, is also the basic model in finance, upon which are built, for example, the Black--Scholes theory of option pricing and hedging, or methods of risk control using diversification. Here the underlying assumptions are discussed using empirical financial data and analogies to physical models such as fluid flows, turbulence, or superdiffusion. On this basis, new theories of derivative pricing and risk control can be formulated. Computer simulations of interacting agent models of financial markets provide insights into the origins of asset price fluctuations. Stock exchange crashes can be modelled in ways analogous to phase transitions and earthquakes. These models allow for predictions. This study edition has been updated with a presentation of several new and significant developments, e.g. the dynamics of volatility smiles and implied volatility surfaces, path integral approaches to option pricing, a new and accurate simulation scheme for options, multifractals, the application of nonextensive statistical mechanics to financial markets, and the minority game. Moreover, the book was scanned for and corrected from errors, both typographical and in presentation.

Interest Rate Modeling

Author : Lixin Wu
Publisher : CRC Press
ISBN 13 : 1351227408
Total Pages : 520 pages
Book Rating : 4.3/5 (512 download)

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Book Synopsis Interest Rate Modeling by : Lixin Wu

Download or read book Interest Rate Modeling written by Lixin Wu and published by CRC Press. This book was released on 2019-03-04 with total page 520 pages. Available in PDF, EPUB and Kindle. Book excerpt: Containing many results that are new, or which exist only in recent research articles, Interest Rate Modeling: Theory and Practice, 2nd Edition portrays the theory of interest rate modeling as a three-dimensional object of finance, mathematics, and computation. It introduces all models with financial-economical justifications, develops options along the martingale approach, and handles option evaluations with precise numerical methods. Features Presents a complete cycle of model construction and applications, showing readers how to build and use models Provides a systematic treatment of intriguing industrial issues, such as volatility and correlation adjustments Contains exercise sets and a number of examples, with many based on real market data Includes comments on cutting-edge research, such as volatility-smile, positive interest-rate models, and convexity adjustment New to the 2nd edition: volatility smile modeling; a new paradigm for inflation derivatives modeling; an extended market model for credit derivatives; a dual-curved model for the post-crisis interest-rate derivatives markets; and an elegant framework for the xVA.

Derivatives

Author : Jiří Witzany
Publisher : Springer Nature
ISBN 13 : 3030517519
Total Pages : 381 pages
Book Rating : 4.0/5 (35 download)

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Book Synopsis Derivatives by : Jiří Witzany

Download or read book Derivatives written by Jiří Witzany and published by Springer Nature. This book was released on 2020-11-04 with total page 381 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book helps students, researchers and quantitative finance practitioners to understand both basic and advanced topics in the valuation and modeling of financial and commodity derivatives, their institutional framework and risk management. It provides an overview of the new regulatory requirements such as Basel III, the Fundamental Review of the Trading Book (FRTB), Interest Rate Risk of the Banking Book (IRRBB), or the Internal Capital Assessment Process (ICAAP). The reader will also find a detailed treatment of counterparty credit risk, stochastic volatility estimation methods such as MCMC and Particle Filters, and the concepts of model-free volatility, VIX index definition and the related volatility trading. The book can also be used as a teaching material for university derivatives and financial engineering courses.