Description
Book SynopsisDynamic 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.
Table of ContentsIntroduction Dynamic Hedging 1
Part 1 Markets, Instruments, People
1 Introduction to the Instruments 9
2 The Generalized Option 38
3 Market Making and Market Using 48
4. Liquidity and Liquidity Holes 68
5 Arbitrage and the Arbitrageurs 80
6 Volatility and Correlation 88
Part II Measuring Option Risks
7 Adapting Black-Scholes-Merton: The Delta 115
8 Gamma and Shadow Gamma 132
9 Vega and the Volatility Surface 147
10 Theta and Minor Greeks 167
11 The Greeks and Their Behavior 191
12 Fungibility, Convergence, and Stacking 208
13 Some Wrinkles of Option Markets 222
14 Bucketing and Topography 229
15 Beware the Distribution 238
16 Option Trading Concepts 256
Part III Trading and Hedging Exotic Options
17 Binary Options: European Style 273
18 Binary Options: American Style 295
19 Barrier Options (I) 312
20 Barrier Options (II) 347
21 Compound, Choosers, and Higher Order Options 376
22 Multiasset Options 383
23 Minor Exotics: Lookback and Asian Options 403
Part IV Modules
Module A Brownian Motion on a Spreadsheet, a Tutorial 415
Module B Risk Neutrality Explained 426
Module C Numeraire Relativity and the Two-Country Paradox 431
Module D Correlation Triangles: A Graphical Case Study 438
Module E The Value-at-Risk 445
Module F Probabilistic Rankings in Arbitrage 453
Module G Option Pricing 459
Notes 479
Bibliography 490
Index 499
