Dynamic Hedging: Managing Vanilla and Exotic Options, Hardcover

Contributor(s):

• Author: Nassim Nicholas Taleb

Dynamic Hedging is the definitive source on derivatives risk. Itprovides a real-world methodology for managing portfolioscontaining any nonlinear security. It presents risks from thevantage point of the option market maker and arbitrage operator.The only book about derivatives risk written by an experiencedtrader with theoretical training, it remolds option theory to fitthe practitioner's environment. As a larger share of marketexposure cannot be properly captured by mathematical models, notedoption arbitrageur Nassim Taleb uniquely covers both on-model andoff-model derivatives risks.

The author discusses, in plain English, vital issues, including:

• The generalized option, which encompasses all instruments withconvex 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 takeinto account the wrinkles of actual, non-bellshapeddistributions.
• Market dynamics viewed from the practitioner's vantage point, including liquidity holes, portfolio insurance, squeezes, fattails, volatility surface, GARCH, curve evolution, static optionreplication, correlation instability, Pareto-Levy, regime shifts, autocorrelation of price changes, and the severe flaws in the valueat 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 thefundamental mathematics of derivatives, such as the Brownianmotion, Ito's lemma, the numeraire paradox, the Girsanov change ofmeasure, and the Feynman-Kac solution are presented in intuitivepractitioner's language.

Dynamic Hedging is an indispensable and definitive reference formarket makers, academics, finance students, risk managers, andregulators.

The definitive book on options trading and risk management

"If pricing is a science and hedging is an art, Taleb is avirtuoso." -Bruno Dupire, Head of Swaps and Options Research, Paribas Capital Markets

"This is not merely the best book on how options trade, it isthe only book." -Stan Jonas, Managing Director, FIMAT-SocietyGARCH

"Dynamic Hedging bridges the gap between what the besttraders know and what the best scholars can prove." -WilliamMargrabe, President, The William Margrabe Group, Inc.

"The most comprehensive, insightful, intuitive work on thesubject. It is instrumental for both beginning and experiencedtraders."-

"A tour de force. That rare find, a book of great practical andtheoretical value. Taleb successfully bridges the gap between theacademic and the real world. Interesting, provocative, wellwritten. Each chapter worth a fortune to any current or prospectivederivatives trader."-Victor Niederhoffer, Chairman, NiederhofferInvestments