The Black-Scholes-Merton option model was the greatest innovation of twentieth century finance, and remains the most widely applied theory in all of finance. Nevertheless, the model is fundamentally at odds with the observed behavior of option markets: a graph of implied volatility against strike will typically display a curve or smile, which the model cannot explain.
Option valuation is not a solved problem, and the past forty years have witnessed an abundance of new ideas and models that try to reconcile theory with markets. Beginning with the principles of financial valuation, The Volatility Smile presents a unique and unified treatment of the Black-Scholes-Merton option model and the more advanced models that have replaced it. Celebrated author, quant, and co-originator of the local volatility model Emanuel Derman and Michael B. Miller explain not just the mathematics but the ideas behind the models. By examining the foundations, the implementation, and the pros and cons of various models, and by carefully exploring their derivations and the consequences of different assumptions, readers will learn not only how to handle the volatility smile but how to evaluate and build their own financial models. Key features:
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Descripción Hardcover. Condición: new. Hardcover. The Volatility Smile The Black-Scholes-Merton option model was the greatest innovation of 20th century finance, and remains the most widely applied theory in all of finance. Despite this success, the model is fundamentally at odds with the observed behavior of option markets: a graph of implied volatilities against strike will typically display a curve or skew, which practitioners refer to as the smile, and which the model cannot explain. Option valuation is not a solved problem, and the past forty years have witnessed an abundance of new models that try to reconcile theory with markets. The Volatility Smile presents a unified treatment of the Black-Scholes-Merton model and the more advanced models that have replaced it. It is also a book about the principles of financial valuation and how to apply them. Celebrated author and quant Emanuel Derman and Michael B. Miller explain not just the mathematics but the ideas behind the models. By examining the foundations, the implementation, and the pros and cons of various models, and by carefully exploring their derivations and their assumptions, readers will learn not only how to handle the volatility smile but how to evaluate and build their own financial models. Topics covered include: The principles of valuationStatic and dynamic replicationThe Black-Scholes-Merton modelHedging strategiesTransaction costsThe behavior of the volatility smileImplied distributionsLocal volatility modelsStochastic volatility modelsJump-diffusion models The first half of the book, Chapters 1 through 13, can serve as a standalone textbook for a course on option valuation and the Black-Scholes-Merton model, presenting the principles of financial modeling, several derivations of the model, and a detailed discussion of how it is used in practice. The second half focuses on the behavior of the volatility smile, and, in conjunction with the first half, can be used for as the basis for a more advanced course. The Volatility Smile The Black-Scholes-Merton option model was the greatest innovation of 20th century finance, and remains the most widely applied theory in all of finance. Shipping may be from multiple locations in the US or from the UK, depending on stock availability. Nº de ref. del artículo: 9781118959169
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Descripción Condición: New. 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. Series: Wiley Finance. Num Pages: 304 pages. BIC Classification: KFF. Category: (P) Professional & Vocational. Weight in Grams: 666. . 2016. 1st Edition. Hardcover. . . . . Nº de ref. del artículo: V9781118959169
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