Advanced equity derivatives : volatility and correlation / Sébastien Bossu.

Format:

Book

Author/Creator:

Bossu, Sébastien, author.

Series:

Wiley finance series

Language:

English

Subjects (All):

Derivative securities.

Physical Description:

xv, 152 pages : illustrations ; 24 cm.

Place of Publication:

Hoboken, New Jersey : Wiley, [2014]

Summary:

"In Advanced Equity Derivatives: Volatility and Correlation, Sebastien Bossu reviews and explains the advanced concepts used for pricing and hedging equity exotic derivatives. Designed for financial modelers, option traders and sophisticated investors, the content covers the most important theoretical and practical extensions of the Black-Scholes model. Each chapter includes numerous illustrations and a short selection of problems, covering key topics such as implied volatility surface models, pricing with implied distributions, local volatility models, volatility derivatives, correlation measures, correlation trading, local correlation models and stochastic correlation. Volatility and correlation are remarkably connected through the author's proxy formula which he discovered in 2004, and shares in the book. He also reveals a new derivation using linear algebra (included in Chapter 6), and the proxy formula is then exploited in the following chapters for correlation trading and correlation modeling. The author has a dual professional and academic background, making Advanced Equity Derivatives: Volatility and Correlation the perfect reference for quantitative researchers and mathematically savvy finance professionals looking to acquire an in-depth understanding of equity exotic derivatives pricing and hedging"-- Provided by publisher.

Contents:

Chapter 1 Exotic Derivatives 1

1-1 Single-Asset Exotics 1

1-2 Multi-Asset Exotics 4

1-3 Structured Products 9

References 11

Problems 11

Chapter 2 The Implied Volatility Surface 15

2-1 The Implied Volatility Smile and Its Consequences 15

2-2 Interpolation and Extrapolation 20

2-3 Implied Volatility Surface Properties 22

2-4 Implied Volatility Surface Models 22

References and Bibliography 29

Problems 30

Chapter 3 Implied Distributions 33

3-1 Butterfly Spreads and the Implied Distribution 33

3-2 European Payoff Pricing and Replication 36

3-3 Pricing Methods for European Payoffs 39

3-4 Greeks 41

References 42

Problems 42

Chapter 4 Local Volatility and Beyond 45

4-1 Local Volatility Trees 45

4-2 Local Volatility in Continuous Time 46

4-3 Calculating Local Volatilities 48

4-4 Stochastic Volatility 50

References 55

Problems 55

Chapter 5 Volatility Derivatives 59

5-1 Volatility Trading 59

5-2 Variance Swaps 61

5-3 Realized Volatility Derivatives 65

5-4 Implied Volatility Derivatives 67

References 70

Problems 70

Chapter 6 Introducing Correlation 73

6-1 Measuring Correlation 73

6-2 Correlation Matrices 75

6-3 Correlation Average 77

6-4 Black-Scholes with Constant Correlation 82

6-5 Local Volatility with Constant Correlation 84

References 84

Problems 85

Chapter 7 Correlation Trading 87

7-1 Dispersion Trading 87

7-2 Correlation Swaps 91

Problems 93

Chapter 3 Local Correlation 95

8-1 The Implied Correlation Smile and Its Consequences 95

8-2 Local Volatility with Local Correlation 97

8-3 Dynamic Local Correlation Models 99

8-4 Limitations 99

References 100

Problems 100

Chapter 9 Stochastic Correlation 103

9-1 Stochastic Single Correlation 103

9-2 Stochastic Average Correlation 104

9-3 Stochastic Correlation Matrix 108

References 111

Problems 111.

Notes:

Includes index.

Includes bibliographical references and index.

Other Format:

Online version: Bossu, Sébastien. Advanced equity derivatives

ISBN:

9781118750964

1118750969

OCLC:

862096418