The book covers essentially all popular exotic options currently trading in the Over-the-Counter OTC market, from digitals,quantos, spread options, lookback options, Asian options, vanilla barrier options, to various types of exotic barrier options and other options. Part II of the book has been revised fundamentally. It takes the reader through the entire spectrum of products in an organized way and provides most necessary formulas as well as the intuition of their derivation It will be of great interest to traders, marketers, analysts, risk managers, professors, graduate students, and anyone who is interested in what is going on in the rapidly changing financial market.
Proofs of several results are simplified and completely new sections on optimal stopping problems and Dynkin games are added. Applications to the valuation and hedging of American-style and game options are presented in some detail.
As a consequence, hedging of plain-vanilla options and valuation of exotic options are no longer limited to the Black-Scholes framework with constant volatility.
Part II of the book has been revised fundamentally. The theme of volatility risk appears systematically. Much more detailed analysis of the various interest-rate models is available.
The authors' perspective throughout is that the choice of a model should be based on the reality of how a particular sector of the financial market functions. In particular, it should concentrate on defining liquid primary and derivative assets and identifying the relevant sources of trading risk.
About this book Introduction This book provides a comprehensive, self-contained and up-to-date treatment of the main topics in the theory of option pricing. The first part of the text starts with discrete-time models of financial markets, including the Cox-Ross-Rubinstein binomial model. The passage from discrete- to continuous-time models, done in the Black-Scholes model setting, assumes familiarity with basic ideas and results from stochastic calculus. However, an Appendix containing all the necessary results is included. An outline of the general theory of arbitrage pricing is presented.
This long-awaited new edition of an outstandingly successful, well-established book, concentrating on the most pertinent and widely accepted modelling approaches, provides the reader with a text focused on the practical rather than the theoretical Exotic Option Trading Book of financial modelling. It will be of great interest to traders, marketers, analysts, risk managers, professors, graduate students, and anyone who is interested in what is going on in the rapidly changing financial market.
It takes the reader through the entire spectrum of products in an organized way and provides most necessary formulas as well as the intuition of their derivation There is no other place where one can find all the pricing tools gathered together, which allows one to price an option without sneezing from the dust of stacks of journal articles The author does a good job when be limits his role to providing a complete pricing encyclopedia This is the most complete conventional option pricing book currently available.