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Foreign Exchange Option Pricing: A Practitioner's Guide 1st Edition
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Top Customer Reviews
Different delta conventions
Market strangles, and how to fit your interpolating function to the traded strikes
Realistic interpolations for volatility surface construction
Local volatility in FX
Local Stochastic Volatility Models
Longdated FX Options
Also covered are the different issues and approaches of implementing the models, like Monte Carlo and PDEs; and a good discussion of barrier bending and exotics.
The focus is on presenting the methods and formulas, not proving theorems; even so, traders should not treat it as only a formula depository, there's real depth behind it.
Highly recommended for anyone trading or modelling FX options.
Thoughtful, clear and rigorous, this book offers an in depth, unified treatment of fx options pricing. It will be a great reference for a quant and also potential traders. Not only does ian bridge the gap about volatility surface, but how one applies these models to the fx. I would recommend having read a prior book in stochastic calculus prior to coming to this book....Although you don't really need an indepth knowledge about stochastic calculus prior to reading this book. Say, a book by ubbo wiersema brownian motion calculus should do the trick or perhaps even shreve (i've read ubbo's book completely and have only read about 7-8 chapters in shreve).
apart from that...a course in numerical linear algebra would also help. although most of the numerical stuff in this book is very self-contained. in short...buy it...The mathematical tootls you will learn from this book can very well be applied in other areas of options pricing.
Some of the most useful topics are:
Concept of many deltas and decent treatment of ATM and Delta conventions
Correctness of FX vol surface construction in the light of 1-vol Butterfly convention
Most relevant fitting methods
good details about models and practical mention of the LSV model -
entire section on practical aspects of the numerical methods
Really like the comparison with Heat equation.
Barrier options have been treated very well. I was able to do a comparative analysis of different skew based models - LV, SV LSV through Moustache graphs for OneTouch and DNTs.
Since Iain was heading desk activities, I would have really liked for him to also cover a few more things like:
- practical aspects of curve building given FX market is so convoluted with conventions - which ccys use LIBOR/OIS curve and which ones use FX Forward implied curves
- How is the model used practically for hedging activities - a little more intuition besides the math
- FX Volatility products in the light of FX models - calibrating SV model parameters to variance swaps.
overall a great book and definitely recommend reading it for desk activities
Most Recent Customer Reviews
This is the best book in the market on valuating and measuring risks in Exotic Foreign Exchange Derivatives. Read morePublished 24 months ago by Amazon Customer