Dynamic Hedging: Managing Vanilla and Exotic Options

Nassim Nicholas Taleb

John Wiley & Sons, Jan 14, 1997 - Business & Economics - 528 pages

Destined to become a market classic, Dynamic Hedging is the only practical reference in exotic options hedgingand arbitrage for professional traders and money managers
Watch the professionals. From central banks to brokerages to multinationals, institutional investors are flocking to a new generation of exotic and complex options contracts and derivatives. But the promise of ever larger profits also creates the potential for catastrophic trading losses. Now more than ever, the key to trading derivatives lies in implementing preventive risk management techniques that plan for and avoid these appalling downturns. Unlike other books that offer risk management for corporate treasurers, Dynamic Hedging targets the real-world needs of professional traders and money managers. Written by a leading options trader and derivatives risk advisor to global banks and exchanges, this book provides a practical, real-world methodology for monitoring and managing all the risks associated with portfolio management.
Nassim Nicholas Taleb is the founder of Empirica Capital LLC, a hedge fund operator, and a fellow at the Courant Institute of Mathematical Sciences of New York University. He has held a variety of senior derivative trading positions in New York and London and worked as an independent floor trader in Chicago. Dr. Taleb was inducted in February 2001 in the Derivatives Strategy Hall of Fame. He received an MBA from the Wharton School and a Ph.D. from University Paris-Dauphine.

Contents

• Introduction Dynamic Hedging: 1
• Introduction to the Instruments: 9
• Order of the Options: 45
• Commoditized and Nonstandard Products: 51
• Market Making and the Price for Immediacy: 57
• Monkeys on a Typewriter: 64
• Liquidity and Risk Management: 70
• Portfolio Insurance: 75
• Mechanical versus Behavioral Stability: 81
• Arbitrage and the Variance of Returns: 87
• Introducing Filtering: 95
• The Parkinson Number and the Variance Ratio Method: 101
• The Delta: 115
• Delta as a Measure for Risk: 121
• Simple Gamma: 132
• Vega and Modified Vega: 147
• Theta and the Modified Theta: 167
• The Greeks and Their Behavior: 191
• Ddeltadvol Stability Ratio: 200
• Fungibility Convergence and Stacking: 208
• Stacking Techniques: 217
• Sticky Strikes: 223
• Static Straight Bucketing: 229
• The Tails: 238
• 169: 267
• European Binary Options: 273
• American Single Binary Options: 295
• Barrier Options: 312
• Technique: 344
• 238: 370
• 256: 379
• Lookback and Asian Options: 403
• PART IV: 413
• Module B Risk Neutrality Explained: 426
• A Graphical Case Study: 438
• Module E The ValueatRisk: 445
• Module F Probabilistic Rankings in Arbitrage: 453
• Module G Option Pricing: 459
• Notes: 479
• Bibliography: 490
• 273: 499
• 376: 500

About the author

Nassim Nicholas Taleb is the founder of Empirica Capital LLC, a hedge fund operator, and a fellow at the Courant Institute of Mathematical Sciences of New York University. He has held a variety of senior derivative trading positions in New York and London and worked as an independent floor trader in Chicago. Dr. Taleb was inducted in February 2001 in the Derivatives Strategy Hall of Fame. He received an MBA from the Wharton School and a Ph.D. from University Paris-Dauphine.

Bibliographic information

• Title: Dynamic Hedging: Managing Vanilla and Exotic Options; Volume 64 of Wiley Finance
• Author: Nassim Nicholas Taleb
• Edition: illustrated
• Publisher: John Wiley & Sons, 1997
• ISBN: 0471152803, 9780471152804
• Length: 528 pages
• Subjects: Business & Economics / Finance / Financial Risk Management; Business & Economics / General; Business & Economics / Investments & Securities / General; Business & Economics / Investments & Securities / Options