Pricing and managing exotic and hybrid options / Vineer Bhansali.

Format:

Book

Author/Creator:

Bhansali, Vineer.

Series:

Irwin library of investment & finance

The Irwin library of investment & finance

Language:

English

Subjects (All):

Derivative securities.

Exotic options (Finance).

Physical Description:

xix, 364 pages : illustrations ; 24 cm.

Place of Publication:

New York : McGraw-Hill, [1998]

Contents:

Chapter 1 Transactions 1

Equity Index-Linked Interest-Rate Options 2

Foreign-Exchange-Linked Caps 11

Multifactor Range Accrual Notes 12

Self-Adjusting Forwards 12

Yield Curve Basket Options 13

Outperformance Options 15

Portfolio Insurance 16

Convertible Issuance Hedges 16

"Diffs" and Cross-Currency Swaps 16

Intermarket Spread Option 18

Long-Dated Foreign Exchange Options 18

Multiasset Barrier Swaps 20

Multiasset American Puts 21

Chapter 2 Markets and Products 23

Markets 25

Product Variations 40

Chapter 3 Pricing Analytics 45

Zero-Correlation Pricing 49

The Multifactor Stochastic Process 50

Symmetries, Invariances, and Equivalences 65

Spread Options 73

Constructing the Explicit Dynamic Hedge 76

Long-Dated Forex Options 79

"Inside" and "Outside" Barrier Options 91

"Rainbow" Options 99

Convertible Bonds with Stochastic Interest Rates 105

Baskets and the Edgeworth Expansion 108

Generalized Put-Call Conversions and Static Hedging 114

Which Discount Curve? 117

Chapter 4 Correlation 120

Estimation 120

Correlation Term Structure 148

Trading Correlation with Volatility 157

Vector Algebra for Correlation 161

Deviations from Multinormality 166

Chapter 5 Numerical Methods 172

Numerical Integration 175

Multivariable Monte-Carlo Simulation 176

Multivariate Trees and Lattices 194

Finite Difference Methods 202

Advanced Numerical Techniques 214

Chapter 6 Strategic Risk Management 218

Trade Selection 220

Cross Risks 225

Hedging Costs 230

The Index Approach and Optimal Risk Aggregation 241

Market Price of Risk for Hybrids 251

Static Hedging 255

Implied Joint Probabilities 257

Trading Algorithms and Risk Measures 258

Utility (or Futility?) of Hedging with Customized Products 273

Deferred Profits 276

The Doctrine of Effective Dynamics 278

Appendix A Techniques for Normal Integrals 292

Common Integrals 292

Cholesky Decomposition 294

Appendix B Random Vectors in n Dimensions 297

Density and Distribution 297

Transformations 297

Independence 298

Mean and Covariance 299

Conditional Densities 300

Conditional Expected Values 300

Characteristic Functions and Normality 301

Order-Statistics 301

Appendix C Review of Basic Black-Scholes Pricing 303

Appendix D Monte-Carlo Engine in VBA 307

Appendix E Max-Min Algebra 310

Appendix F Volatility and Skews 313

Estimation 313

Hedge Readjustment with Vol Skews 316

Appendix G Multivariate Statistical Techniques 319

Overview of Multivariate Methods 319

Covariance Matrix Eigenstructure 320

Applied Principal Components Decomposition 322

Appendix H Distributions 324

Properties of the Lognormal Distribution 324

Mixed Normal Distributions 327

Moment Generating Functions 329

Multivariate Distributions 330

Method of Moments 331

Useful Numerical Approximations 334

Appendix I Stochastic Processes 338

Useful Properties 338

Girsanov Theorem and Change of Drift 342

Solution of Stochastic Differential Equations 345

Level-Crossing 347

First-Passage Time 347

Appendix J PDE Methods 349

Classification 349

Numerical Solution of the Diffusion Equation 350

Analytic Solutions of the Diffusion Equation 352

Fourier Transform Method 353

Laplace Transform Methods 354.

Notes:

Includes bibliographical references (pages 281-291) and index.

ISBN:

0070066698

OCLC:

37917260