Fx Options And Smile Risk
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Fx Options And Smile Risk
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Author : Antonio Castagna
language : en
Publisher:
Release Date : 2010
Fx Options And Smile Risk written by Antonio Castagna and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010 with Foreign exchange options categories.
The FX options market represents one of the most liquid and strongly competitive markets in the world, and features many technical subtleties that can seriously harm the uninformed and unaware trader. This book is a unique guide to running an FX options book from the market maker perspective. Striking a balance between mathematical rigour and market practice and written by experienced practitioner Antonio Castagna, the book shows readers how to correctly build an entire volatility surface from the market prices of the main structures. Starting with the basic conventions related to the main FX deals and the basic traded structures of FX options, the book gradually introduces the main tools to cope with the FX volatility risk. It then goes on to review the main concepts of option pricing theory and their application within a Black-Scholes economy and a stochastic volatility environment. The book also introduces models that can be implemented to price and manage FX options before examining the effects of volatility on the profits and losses arising from the hedging activity. Coverage includes:ul type="disc"lihow the Black-Scholes model is used in professional trading activitylithe most suitable stochastic volatility modelslisources of profit and loss from the Delta and volatility hedging activitylifundamental concepts of smile hedginglimajor market approaches and variations of the Vanna-Volga methodlivolatility-related Greeks in the Black-Scholes modellipricing of plain vanilla options, digital options, barrier options and the less well known exotic optionslitools for monitoring the main risks of an FX options' book/ul The book is accompanied by a CD Rom featuring models in VBA, demonstrating many of the approaches described in the book.
Fx Options And Smile Risk
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Author : Antonio Castagna
language : en
Publisher: John Wiley & Sons
Release Date : 2010-01-19
Fx Options And Smile Risk written by Antonio Castagna and has been published by John Wiley & Sons this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010-01-19 with Business & Economics categories.
The FX options market represents one of the most liquid and strongly competitive markets in the world, and features many technical subtleties that can seriously harm the uninformed and unaware trader. This book is a unique guide to running an FX options book from the market maker perspective. Striking a balance between mathematical rigour and market practice and written by experienced practitioner Antonio Castagna, the book shows readers how to correctly build an entire volatility surface from the market prices of the main structures. Starting with the basic conventions related to the main FX deals and the basic traded structures of FX options, the book gradually introduces the main tools to cope with the FX volatility risk. It then goes on to review the main concepts of option pricing theory and their application within a Black-Scholes economy and a stochastic volatility environment. The book also introduces models that can be implemented to price and manage FX options before examining the effects of volatility on the profits and losses arising from the hedging activity. Coverage includes: how the Black-Scholes model is used in professional trading activity the most suitable stochastic volatility models sources of profit and loss from the Delta and volatility hedging activity fundamental concepts of smile hedging major market approaches and variations of the Vanna-Volga method volatility-related Greeks in the Black-Scholes model pricing of plain vanilla options, digital options, barrier options and the less well known exotic options tools for monitoring the main risks of an FX options’ book The book is accompanied by a CD Rom featuring models in VBA, demonstrating many of the approaches described in the book.
Fx Barrier Options
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Author : Zareer Dadachanji
language : en
Publisher: Springer
Release Date : 2016-04-29
Fx Barrier Options written by Zareer Dadachanji and has been published by Springer this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016-04-29 with Business & Economics categories.
Barrier options are a class of highly path-dependent exotic options which present particular challenges to practitioners in all areas of the financial industry. They are traded heavily as stand-alone contracts in the Foreign Exchange (FX) options market, their trading volume being second only to that of vanilla options. The FX options industry has correspondingly shown great innovation in this class of products and in the models that are used to value and risk-manage them. FX structured products commonly include barrier features, and in order to analyse the effects that these features have on the overall structured product, it is essential first to understand how individual barrier options work and behave. FX Barrier Options takes a quantitative approach to barrier options in FX environments. Its primary perspectives are those of quantitative analysts, both in the front office and in control functions. It presents and explains concepts in a highly intuitive manner throughout, to allow quantitatively minded traders, structurers, marketers, salespeople and software engineers to acquire a more rigorous analytical understanding of these products. The book derives, demonstrates and analyses a wide range of models, modelling techniques and numerical algorithms that can be used for constructing valuation models and risk-management methods. Discussions focus on the practical realities of the market and demonstrate the behaviour of models based on real and recent market data across a range of currency pairs. It furthermore offers a clear description of the history and evolution of the different types of barrier options, and elucidates a great deal of industry nomenclature and jargon.
Foreign Exchange Option Pricing
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Author : Iain J. Clark
language : en
Publisher: John Wiley & Sons
Release Date : 2011-10-20
Foreign Exchange Option Pricing written by Iain J. Clark and has been published by John Wiley & Sons this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011-10-20 with Business & Economics categories.
This book covers foreign exchange options from the point of view of the finance practitioner. It contains everything a quant or trader working in a bank or hedge fund would need to know about the mathematics of foreign exchange—not just the theoretical mathematics covered in other books but also comprehensive coverage of implementation, pricing and calibration. With content developed with input from traders and with examples using real-world data, this book introduces many of the more commonly requested products from FX options trading desks, together with the models that capture the risk characteristics necessary to price these products accurately. Crucially, this book describes the numerical methods required for calibration of these models – an area often neglected in the literature, which is nevertheless of paramount importance in practice. Thorough treatment is given in one unified text to the following features: Correct market conventions for FX volatility surface construction Adjustment for settlement and delayed delivery of options Pricing of vanillas and barrier options under the volatility smile Barrier bending for limiting barrier discontinuity risk near expiry Industry strength partial differential equations in one and several spatial variables using finite differences on nonuniform grids Fourier transform methods for pricing European options using characteristic functions Stochastic and local volatility models, and a mixed stochastic/local volatility model Three-factor long-dated FX model Numerical calibration techniques for all the models in this work The augmented state variable approach for pricing strongly path-dependent options using either partial differential equations or Monte Carlo simulation Connecting mathematically rigorous theory with practice, this is the essential guide to foreign exchange options in the context of the real financial marketplace.
Fx Option Performance
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Author : Jessica James
language : en
Publisher: John Wiley & Sons
Release Date : 2015-04-23
Fx Option Performance written by Jessica James and has been published by John Wiley & Sons this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015-04-23 with Business & Economics categories.
Get the little known – yet crucial – facts about FX options Daily turnover in FX options is an estimated U.S. $ 207 billion, but many fundamental facts about this huge and liquid market are generally unknown. FX Option Performance provides the information practitioners need to be more effective in the market, with detailed, specific guidance. This book is a unique and practical guide to option trading, with the courage to report how much these contracts have really made or lost. Breaking free from the typical focus on theories and generalities, this book gets specific – travelling back in history to show exactly how options performed in different markets and thereby helping investors and hedgers alike make more informed decisions. Not overly technical, the rigorous approach remains accessible to anyone with an interest in the area, showing investors where to look for value and helping corporations hedge their FX exposures. FX Option Performance begins with a quick and practical introduction to the FX option market, then provides specific advice toward structures, performance, rate fluctuation, and trading strategies. Examine the historical payoffs to the most popular and liquidly traded options Learn which options are overvalued and which are undervalued Discover surprising, generally unpublished facts about emerging markets Examine systemic option trading strategies to find what works and what doesn't On average, do options result in profit, loss, or breaking even? How can corporations more cost-effectively hedge their exposure to emerging markets? Are cheap out-of-the-money options worth it?
Volatility Smile And Risk Neutral Density For Fx Options
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Author : Luis Murra
language : en
Publisher:
Release Date : 2017
Volatility Smile And Risk Neutral Density For Fx Options written by Luis Murra and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.
This paper provides a number of relevant guidelines to build a consistent Volatility Smile accounting for the FX market conventions. This consistency is understood as fitting a model which is able to price vanilla options across all possible strikes given the knowledge of a few market structures. To that end, the following models are introduced: Vanna-Volga, SABR, and a Quadratic Polynomial. In addition, the Risk Neutral Density is estimated with the first two models. It is shown that not accounting for such conventions can lead to signicant errors in the estimations.These methods can find important applications in risk management, portfolio selection, and financial event studies.
Fx Options And Structured Products
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Author : Uwe Wystup
language : en
Publisher: John Wiley & Sons
Release Date : 2017-06-30
Fx Options And Structured Products written by Uwe Wystup and has been published by John Wiley & Sons this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017-06-30 with Business & Economics categories.
Advanced Guidance to Excelling in the FX Market Once you have a textbook understanding of money market and foreign exchange products, turn to FX Options and Structured Products, Second Edition, for the beyond-vanilla options strategies and traded deals proven superior in today’s post-credit crisis trading environment. With the thoroughness and balance of theory and practice only Uwe Wystup can deliver, this fully revised edition offers authoritative solutions for the real world in an easy-to-access format. See how specific products actually work through detailed case studies featuring clear examples of FX options, common structures and custom solutions. This complete resource is both a wellspring of ideas and a hands-on guide to structuring and executing your own strategies. Distinguish yourself with a valued skillset by: Working through practical and thought-provoking challenges in more than six dozen exercises, all with complete solutions in a companion volume Gaining a working knowledge of the latest, most popular products, including accumulators, kikos, target forwards and more Getting close to the everyday realities of the FX derivatives market through new, illuminating case studies for corporates, municipalities and private banking FX Options and Structured Products, Second Edition is your go-to road map to the exotic options in FX derivatives.
Fx Options And Smile Risk
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Author : Antonio Castagna
language : en
Publisher: John Wiley & Sons
Release Date : 2010-02-12
Fx Options And Smile Risk written by Antonio Castagna and has been published by John Wiley & Sons this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010-02-12 with Business & Economics categories.
The FX options market represents one of the most liquid and strongly competitive markets in the world, and features many technical subtleties that can seriously harm the uninformed and unaware trader. This book is a unique guide to running an FX options book from the market maker perspective. Striking a balance between mathematical rigour and market practice and written by experienced practitioner Antonio Castagna, the book shows readers how to correctly build an entire volatility surface from the market prices of the main structures. Starting with the basic conventions related to the main FX deals and the basic traded structures of FX options, the book gradually introduces the main tools to cope with the FX volatility risk. It then goes on to review the main concepts of option pricing theory and their application within a Black-Scholes economy and a stochastic volatility environment. The book also introduces models that can be implemented to price and manage FX options before examining the effects of volatility on the profits and losses arising from the hedging activity. Coverage includes: how the Black-Scholes model is used in professional trading activity the most suitable stochastic volatility models sources of profit and loss from the Delta and volatility hedging activity fundamental concepts of smile hedging major market approaches and variations of the Vanna-Volga method volatility-related Greeks in the Black-Scholes model pricing of plain vanilla options, digital options, barrier options and the less well known exotic options tools for monitoring the main risks of an FX options’ book The book is accompanied by a CD Rom featuring models in VBA, demonstrating many of the approaches described in the book.
Volatility Smile For Fx Options
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Author : Luis Murra Sánchez
language : en
Publisher:
Release Date : 2014
Volatility Smile For Fx Options written by Luis Murra Sánchez and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.
American Binary Fx Options
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Author : Kurt Smith
language : en
Publisher:
Release Date : 2010
American Binary Fx Options written by Kurt Smith and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010 with Exotic options (Finance) categories.
[Truncated abstract] There is no universally accepted benchmark model for pricing exotic FX options to market, such as that for European vanilla FX options. The use of not only different models but also of different methodologies, results in widely dispersed model-dependent exotic option prices for any given set of market and contract inputs. The severity of the resultant model price dispersion is strong evidence of model risk. Model risk is especially acute for price-makers in sell-side banks who, owing to the heterogeneity of over-the-counter (OTC) exotic options, do not have actual traded daily closing mark-to-market prices for all exotic options in their book, and so must mark-to-model instead. If the model does not perform well, it will not reflect market reality, and neither will the reported daily profit and loss. Given that sell-side banks use models throughout the price-making process, from pricing market risk to identifying hedging strategies, defining risk limits, reporting to key stakeholders internally and externally, as well as determining trader bonuses and Basel II capital retention levels, model risk is an important consideration in the OTC exotic option space. The orthodox response to model risk is price centric. Orthodoxy develops models that rely on complex and esoteric mathematics in order to improve pricing accuracy, even if it results in models that are opaque and inaccessible to most price-makers and risk managers who use them. In contrast, this research focuses on hedging strategies. This is because price-makers, irrespective of the model used to price, hedge unwanted imbalances in exotic FX option risk with liquid, traded European vanilla FX option strategies like butterflies and risk reversals. Since price-maker hedging activity is relatively model-independent, whereas price is highly model-dependent, it follows that the actual hedging behaviour of price-makers should dictate the form of the pricing model if model risk is to be minimised. In this context, the traded vanilla volatility surface is only relevant to exotic option prices insofar as it prices the cost of a traded hedge. Since it is not possible, let alone practical to trade a whole-of-volatility-surface hedge, there is no economic substance to bind orthodoxy s whole-of-volatility-surface calibrations to traded exotic option prices. This research presents a variant of the vanna-volga model which, in addition to pricing smile risk and skew risk, also prices term risk, which is the risk that an exotic option terminates prior to expiry owing to the spot price trading at or through a barrier price. The model presented here uniquely prices to market the cost of a European vanilla FX option hedge portfolio that matures at the exotic FX option s expected stopping time, instead of at the expiration date like other vanna-volga models. By expiring at the exotic option s expected stopping time, the hedge uniquely prices the non-trivial term structure that is present not only in the level of volatility, but also in its smile and skew. Why price the cost of expensive long-dated butterflies if the exotic option is expected to terminate sooner, leaving a residual butterfly open position that has to be unwound...