The Volatility Smile (Wiley Finance)

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9781118959169: The Volatility Smile (Wiley Finance)
Vom Verlag:

Cutting edge volatility and options pricing from the world's top quant

The Volatility Smile is a comprehensive introduction to this important topic in derivatives pricing and options trading, by celebrated author and quant Emanuel Derman. Using mathematics, calculus, differential equations, and stochastic calculus, Derman presents models and methods of solution in the world of derivatives pricing but this is not a book about math. This book is designed to help you hone your instincts and intuition about a variety of options models, understanding what you're doing and why you're doing it. Building models is the easy part this book teaches you how to determine whether or not your model is realistic, and what it actually leads to. You'll dive deep into the volatility smile and how it contradicts the classic Black-Scholes model, and then explore alternative models that account for it. You'll derive simple proofs to key formulas, and develop them logically to estimate the effects, and learn just how limited financial models are. You'll develop a strong foundational understanding of the meaning, mechanics, and methods that go way beyond solutions to provide a more accurate picture of options pricing.

Academics tend to think of options valuations as a solved problem of little interest, but practitioners understand that the problem isn't solved at all. This book deepens your understanding of the tools of your trade, with practical insight for better results. * Extend the Black-Scholes-Merton model to accommodate the volatility smile * Gain deep insight into model choice, model validity, and model testing * Build your own models and understand what the results are telling you

The Volatility Smile provides the clarity and understanding real-world practitioners need to perform more effectively and authoritatively.

Vom Verlag:

"The Volatility Smile" uses mathematics, calculus, differential equations and stochastic calculus to present models and methods of solution in the world of derivatives pricing, but this "isn't" a book about mathematics, calculus, differential equations or stochastic calculus. This book develops a reader's intuition about a variety of options models, not merely the methods of solution. No assumptions behind financial models are genuinely true, and no financial models are really correct, so it's very important to understand what you're doing and why you're doing it. Derman, successful quant, professor, and author, presents readers with the tools they need to form an understanding of the practical use of the Black-Scholes-Merton model by finding the theoretical and practical limitations of it and its extensions to accommodate and explain the volatility smile, as well as the consequences of its extensions. He offers up that it is easy to make up new models but readers should more importantly understand whether they are realistic and what they lead to. Derman describes the smile structure of implied volatilities and the way that structure contradicts the classic Black-Scholes model then considers some of the sorts of models that can account for the smile. There are many important issues of model choice, model validity and model testing that are of practical concern that involve many people in the front and back office, as well as in IT groups at firms. Derman shows readers how to build their own models and understand what they lead to. He also derives simple proofs of the key model formulas and develops them logically so that readers can estimate the effects of the models.

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