Customer Reviews

The Complete Guide to Option Pricing Formulas

5 star:		(24)
4 star:		(5)
3 star:		(1)
2 star:		(2)
1 star:		(4)

 

 

This book is the "standard" for providing straightforward code demonstrating various options pricing techniques, and perhaps deservedly so -- after all, it really doesn't have too many competitors in that niche. However, even in the course of the fairly straightforward applications I've had for this book (mostly simple equity Cox-Ross and Black-Scholes modeling), I've been shocked by the number of blatant mathematical errors (in the formulas for rho with distinct carry and risk-free rates, for instance). Clearly, the author and editors didn't bother to spend much time verifying that the formulas they cite are actually correct. (I'm actually shocked to see a fellow reviewer praise the "proofreading" -- I'm guessing he or she never actually had to use any of the formulas in this book!)

Bottom line -- if you're looking for a handy, compact reference of option pricing formulas, this is probably what you'll end up with. But be careful. It is SO frustrating to spend hours trying to figure out where you made a mistake in implementing one of these models, only to learn that you DIDN'T make a mistake -- the mistake was in your source. Consider yourself warned...

I have reviewed many of the formulas in several sections of this book and have found a number of mistakes. As a result, I can trust no formula from the book without reviewing the literature or some other source.

The author does not use consistent terminology throughout the book. Rather, the terminology of the original journal article is used for each pricing model. This makes referring to the articles convenient, but then you don't need the book if you're going to the source...

I have used few of the computer programs offered, but the ones that I have used have had terrible inefficiencies. For example, a bisectional iterative search was used, which is very simple to write but is also very inefficient. There are many other simple and more efficient alternatives.

Have you ever wished someone took all the significant option formulas of the last 25 years and packed them into one volume? Is your calculus rusty? How about putting the formulas into Visual Basic so they can be employed directly in Microsoft Excel spreadsheets or Access databases. This is the main appeal of Option Pricing Formulas, which fills a void in current option literature. As option players became more computer literate an anthology of coded option theory was clearly needed.

The book covers everything from the tried and true Black Scholes and Cox/ Rubenstein formulas to the more exotic worlds of barrier and currency translated options. Software is included with the Visual Basic code as well as preprogrammed Excel files. Think of it as a cookbook for the technically oriented option trader.

If you are reading this page, it means that you are interested in derivative securities. I am a person who is "average" on calculus (did it in univ 4 years back), have been a consultant until now since my graduation but wanted to move into i-banking...

I sulked at the thought of (if not dreaded) going back to calculus and all those math-heavy thingies, but among my searches I found this book. It sounded best because rather than a lot of historical and theoretical jazz alone, I wanted to see a compilation of the actual formulae. Believe me, JUST GET IT!!

1. This book gives me all of the above in one neat capsule form! All the introductory derivatives stuff i read sounded like "And derivates can be of the type options, futures etc". That 'etc' always bothered me because I wanted something which told me ALL types of derivatives. This book does it - at least MOST of it. It has BlackScholes, binomials, also has an excellent section on Monte Carlo.

2. This book also made me feel a lot more confident than the average book from my library - right from chapter 1, I did not feel that it has been a long time since I did derivatives and integration. Worth it.

3. Anyone who says that this is too techie for a normal person just does not get it. I am a very ordinary calculus guy, but this made sense ....you of course need to put your head to it..you cannot be watching Seinfeld and reading this book-- and remember, its structured more like a reference book with all the formulas and brief descriptions of why/how/where they are likely to be used. Excellent and efficient scope if you ask me!

4. As I said, if you are looking at this page then you are most likely interested in derivatives, and believe me my friend, just get this book. It is worth EACH PENNY regardless of what other books you may have!

If you are really keen, I would also suggest reading this in conjunction with "Options, futures..." by John Hull (Prentice Hall). And if you are really really keen, take a look at this v. informative website:

Good luck.

If you want to cook, buy the paperback edition of "The Joy of Cooking" (JoC) and low and behold, your cooking will improve. JoC is a recipe book, but as you work through it you learn principals for cooking that are widely applicable.

If you want to be in quantfin you need to buy The Complete Book of Option Pricing Formulas: it is the "Joy of Cooking" for options. As you work through the collection, the formulas, and look at the code (on a wonderful CDROM) low and behold you'll get better at all principals, concepts, and conceptions on how code works for option pricing formulas.

A word about errors in the previous edition: even critical editions of long-dead authors have errors in them, just look at the "errata" sheets from The Library of America critical editions.

For the first edition Espen Haug put his errata sheet immediately up on his website, and it also is widely available with a simple GOOGLE search (lots of people have copies on the various quant fin discussion boards). 10 seconds extra work versus whining away about how something isn't perfect? Oh, grow up. You rationally will be spending that much extra time on learning this code and digesting material in this book anyway.

Excellent in every way.

This book is great for those who want a no nonsense guide to various option pricing formulae. What makes this book worthy of ten stars is that it provides VBA codes implementing virtually all of the formulae presented in the book. This is a great book for anyone interested in learning how option and derivative pricing works. The difference between loving a book like this -- as opposed to NOT really being interested in a book like this because one is scared of a little math -- is like the difference between knowing how to engineer, design, and build a fine sports car -- as opposed to knowing how to steer an old clunker.

So if you are REALLY interested in options and aren't afraid of a little math and a little programming, then this book is a must buy!

This book is a genious in the making. I myself have lots of notes on option formulas, however, this book represents what I've wanted to put together for a long time now. These formulas are also the closest I've seen to how the street actually prices options.

============================== Please don't post this section: ============================== Amazon - how can I get in touch with the author? I have written all these pricing formulas in Javascript, I need to know if this is ok.. Pls help

Looking for a book with all key option formulas? Familiar with Exel Visual Basic? That's the book for you! Including the Implied Trinomial Tree.

I have been using this book for many years now and it is absolutely fantastic. This book is useful for practical users as a first step towards option pricing. This book is not intented for critical analysis and derivation of the formulas (there are a zillion research papers for that). I like the approach of the book. It keeps it simple - input parameters, formula, result. It has many examples which helps me to calibrate my results.

Bottom line - if you have a PhD and strong math background read the source literature and research papers. For the rest of us this is "the" book.

This book is extremly usefull and I would recommend it to everyone involded in quickly implementing new and complex derivatives securities. Some pricing formulas such as the three dimensional binomial trees are very refreshing tools to price all kinds of two asset options. The disk provided is simple of use, the financial notation is rigourous, the code is very accessible, and remarkably empty or programming errors ! It is very easy to customize the source code to price and analyse on a spreadsheet, all sorts of proprietary derivative securities.