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Introduction to Implied, Local and Stochastic Volatility

Books Related - Stochastic Volatility

Product Description:

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

Product Description:

"It has been said that in theory, theory translates into practice, but in practice it never does. This breakthrough book defies this conventional wisdom in a unique way. It is a must read for anyone interested in structuring derivatives products." — Dr Peter Carr, Principal, Banc of America Securities
"Harry Kat has done a masterful job explaining the world of exotic options and the role that these options play in building structured securities. Dr Kat conveys the essence of these products from the perspective of a very experienced financial engineer but in a fashion that the less experienced reader can easily follow and understand. In this, Dr Kat has shown himself to be a marvellous teacher. I'm confident that this book will prove to be one of the classics to be read by future generations of financial engineers." — John F. Marshall, Principal, Marshall, Tucker & Associates, and Founding Executive Director, International Association of Financial Engineers

"This is a refreshingly new and different book about putting together structured equity products. It is not a book about deriving formulas but a book about applying formulas. The emphasis on hedging costs and alternative ways of reducing those costs by modifying the structure will be appreciated both by those who actually manufacture and sell these products and those who buy them." — Don Chance, First Union Professor, Virginia Tech

"This book is about applications, about solving real business problems with derivatives.... Contrary to many other books in the field, the approach is managerial rather than abstractly mathematical, aimed at practitioners instead of applied mathematicians. Professor Kat's book contains all the mathematics required. However, the mathematical aspects play a purely supportive role, not the starring role. Bravo!"
— Anthony F. Herbst, University of Texas at El Paso, Founding Editor, The Journal of Financial Engineering

"It is certainly a unique book, much more useful that most new books on derivatives. In a nutshell, this book is very creatively done and a great resource for professionals."
— Mark Rubinstein, Paul Stephens Professor of Applied Investment Analysis, University of California at Berkeley

One of the most widely read books among active option traders around the world, Option Volatility & Pricing has been completely updated to reflect the most current developments and trends in option products and trading strategies.


  • Pricing models
  • Volatility considerations
  • Basic and advanced trading strategies
  • Risk management techniques
  • And more!

Written in a clear, easy-to-understand fashion, Option Volatility & Pricing points out the key concepts essential to successful trading. Drawing on his experience as a professional trader, author Sheldon Natenberg examines both the theory and reality of option trading. He presents the foundations of option theory explaining how this theory can be used to identify and exploit trading opportunities. Option Volatility & Pricing teaches you to use a wide variety of trading strategies and shows you how to select the strategy that best fits your view of market conditions and individual risk tolerance.

New sections include:

  • Expanded coverage of stock option
  • Strategies for stock index futures and options
  • A broader, more in-depth discussion volatility
  • Analysis of volatility skews
  • Intermarket spreading with options

Discover how option Volatility indicates market tops/bottoms, how it tells you the best strategy to use, how it indicates whether options should be bought or sold & how it can be used to take advantage of premium "disparity" between option stock prices. Learn expert ways to exploit opition market inefficiences, how to use "neutral strategies" to trade like a "bookie" and methods that take advantage of seasonal factors in volatility. A special section explains how "gurus" like Natenbert, Najarian, Trester and others use volatility to their beneift. "Comprehensive discussions of the most important variable in option pricing-volatility- is certain to benefit both profesional and novice traders" according to Larry McMillan, Author of "Options as a Strategic Investment." This edition has all new, fully updated charts.

*A compilation of acclaimed papers on stochastic volatility research *In-depth analysis and commentary on how to implement the latest techniques, outlining the advantages as well as potential pitfalls *Specially commissioned introductions by academic editor, Professor Robert Jarrow, Cornell University, USA

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