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Dynamic Hedging: Managing Vanilla and Exotic Options (Wiley Finance)
 
 
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Dynamic Hedging: Managing Vanilla and Exotic Options (Wiley Finance) (Hardcover)

~ Nassim Nicholas Taleb (Author) "In this chapter, we will rapidly but formally define the instruments and present their major characteristics..." (more)
Key Phrases: biased assets, decomposable fragment, expected first exit time, Asset Price Figure, New York, Time Figure (more...)
3.9 out of 5 stars  See all reviews (43 customer reviews)

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Editorial Reviews

Product Description

Dynamic Hedging is the definitive source on derivatives risk. It provides a real-world methodology for managing portfolios containing any nonlinear security. It presents risks from the vantage point of the option market maker and arbitrage operator. The only book about derivatives risk written by an experienced trader with theoretical training, it remolds option theory to fit the practitioner's environment. As a larger share of market exposure cannot be properly captured by mathematical models, noted option arbitrageur Nassim Taleb uniquely covers both on-model and off-model derivatives risks.

The author discusses, in plain English, vital issues, including:

  • The generalized option, which encompasses all instruments with convex payoff, including a trader's potential bonus.
  • The techniques for trading exotic options, including binary, barrier, multiasset, and Asian options, as well as methods to take into account the wrinkles of actual, non-bellshaped distributions.
  • Market dynamics viewed from the practitioner's vantage point, including liquidity holes, portfolio insurance, squeezes, fat tails, volatility surface, GARCH, curve evolution, static option replication, correlation instability, Pareto-Levy, regime shifts, autocorrelation of price changes, and the severe flaws in the value at risk method.
  • New tools to detect risks, such as higher moment analysis, topography exposure, and nonparametric techniques.
  • The path dependence of all options hedged dynamically

Dynamic Hedging is replete with helpful tools, market anecdotes, at-a-glance risk management rules distilling years of market lore, and important definitions. The book contains modules in which the fundamental mathematics of derivatives, such as the Brownian motion, Ito's lemma, the numeraire paradox, the Girsanov change of measure, and the Feynman-Kac solution are presented in intuitive practitioner's language.

Dynamic Hedging is an indispensable and definitive reference for market makers, academics, finance students, risk managers, and regulators.

The definitive book on options trading and risk management

"If pricing is a science and hedging is an art, Taleb is a virtuoso." —Bruno Dupire, Head of Swaps and Options Research, Paribas Capital Markets

"This is not merely the best book on how options trade, it is the only book." —Stan Jonas, Managing Director, FIMAT-Société Générale

"Dynamic Hedging bridges the gap between what the best traders know and what the best scholars can prove." —William Margrabe, President, The William Margrabe Group, Inc.

"The most comprehensive, insightful, intuitive work on the subject. It is instrumental for both beginning and experienced traders."—

"A tour de force. That rare find, a book of great practical and theoretical value. Taleb successfully bridges the gap between the academic and the real world. Interesting, provocative, well written. Each chapter worth a fortune to any current or prospective derivatives trader."—Victor Niederhoffer, Chairman, Niederhoffer Investments



From the Publisher

Written by a leading options trader and derivatives risk advisor to global banks and exchanges, this book provides a practical, real-world methodology for monitoring and managing all the risks associated with portfolio management. Fills a big gap in investment literature--the only book to share complex options trading strategies and advanced risk management methods with trading professionals.

Product Details

  • Hardcover: 528 pages
  • Publisher: Wiley (January 14, 1997)
  • Language: English
  • ISBN-10: 0471152803
  • ISBN-13: 978-0471152804
  • Product Dimensions: 10 x 7.2 x 1.3 inches
  • Shipping Weight: 2.1 pounds (View shipping rates and policies)
  • Average Customer Review: 3.9 out of 5 stars  See all reviews (43 customer reviews)
  • Amazon.com Sales Rank: #77,539 in Books (See Bestsellers in Books)

    Popular in these categories: (What's this?)

    #59 in  Books > Business & Investing > Investing > Options
    #96 in  Books > Business & Investing > Investing > Futures

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Nassim Taleb
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Customer Reviews

43 Reviews
5 star:
 (23)
4 star:
 (9)
3 star:
 (2)
2 star:
 (3)
1 star:
 (6)
 
 
 
 
 
Average Customer Review
3.9 out of 5 stars (43 customer reviews)
 
 
 
 
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Most Helpful Customer Reviews

 
37 of 39 people found the following review helpful:
3.0 out of 5 stars Derivatives Theory meets Practice, March 7, 2004
By Christopher Hefele (Lawrenceville, NJ United States) - See all my reviews
(REAL NAME)   
This book provides a healthy dose of practical wisdom for options traders so that they don't blindly follow their mathematical models into oblivion. The author (Taleb) has a PhD in finance, but also has traded in the pits, he knows both theory and practice and where they diverge.

Taleb focuses on hedging, which is a trader's main task when running a large portfolio of options. Instead of using a flood of equations, Taleb relies on charts, graphs, and tables to make his points. Most of the equations & heavy mathematics are relegated to the appendix, presumably because quants (or software) will price the instruments. He covers the behavior of the Greeks (delta, gamma, vega, theta, etc.) for vanilla options as well as behavior of exotic options, and delves into the practicalities of volatility, hedging at discontinuities, and various other topics.

The book is very popular on trading desks, and although I found it pretty good, I didn't find it to be outstanding. Also, notably, the book does NOT cover credit & interest rate derivatives at all; hopefully this will be corrected in the next edition.

So if you need a book on the practicalities of hedging a portfolio of vanilla/exotic options, then get this book. On the other hand, if you want some basic options theory, or want to focus more in pricing, or need a basic introduction, look elsewhere (perhaps to Hull's or Wilmott's books).

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26 of 28 people found the following review helpful:
5.0 out of 5 stars A Book for Traders, February 23, 2000
By Nigel N. (London) - See all my reviews
I would not recommend this book to build up an academic background but rather to develop an understanding and an intuition of how dynamic options are. As a hedge fund options trader this book has been very valuable to me to validate my own observations and where necessary to correct those observations, which at the time seemed correct, but which the author through market experience manages to convey the proper meaning. This book is not only factual but also provides you with the right frame of mind to think about options. I believe you can also use the author's experience to boost your own practical experience.
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16 of 17 people found the following review helpful:
4.0 out of 5 stars novel, May 15, 2000
By Kevin Rosema (Hoboken, NJ United States) - See all my reviews
Yes, this book could use an editor - there are all sorts of errors everywhere. While it makes the reading pretty tough, I think this is really one of the most useful books on options around. It's a little like Campbell/Lo/MacKinlay's book on empirical finance, but with a more experienced and real-life perspective. It's a bit refreshing after all the copycat books on option pricing that still don't contribute much beyond what Hull has written. No question, top 5 in practical finance reading.
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Most Recent Customer Reviews

5.0 out of 5 stars Thorough
Very academic, but extremely insightful. I was a music major, and with a little patience, I was able to understand everything in the book. Read more
Published 1 month ago by Chemistry

5.0 out of 5 stars One of a kind
The book is a difficult read the first time around while you get used to Taleb's style. It is because his style is so refreshingly different from everything published on the... Read more
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5.0 out of 5 stars Dynamic Hedging
This is a ponderous work that needs close study. Most investing books omit
real information on the subject where as this one presents a massive overdose. Read more
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4.0 out of 5 stars Outstanding
Taleb once again. Although you may require some knowledge on futures and option trading to understand the bottom of the story, it is nice book, light to read and usefull. Read more
Published 17 months ago by Gutierrez Gonzalo

4.0 out of 5 stars Excellent book, intuitive approach although not to be used for introductory purposes
Before starting as a trader I had studied Hull in college and took some 'advanced' investments classes. On the first day of work I was told to read 'Dynamic Hedging'. Read more
Published 19 months ago by S. Martinez

4.0 out of 5 stars Quick Question
This isn't so much a review as an inquiry -

I'm still working through this book, but I've noticed that it is replete with algebraic errors. Read more
Published 23 months ago by bk

5.0 out of 5 stars Revised edition?
Books-A_Million lists a revised edition, ISBN: 0471353477, with December, 2008, as a publication date. Their advance order price is $76.95.
Published 24 months ago by Peccavi Ploro

4.0 out of 5 stars Dynamic Hedging...goo stuff
Great book, very easy read as it is written in a conversational tone. Covers all the issues associated with derivative trading in an intuitive manner.
Published on June 13, 2007 by Mr. Daniel Campos

4.0 out of 5 stars Good Work
Definitely for pros. This book is one of the fewest which is concentrated on the hedging compared to the tons which explain pricing. Read more
Published on October 24, 2006 by Eyup Gulsun

5.0 out of 5 stars the best book in options
This book is a really useful and practical introduction in derivatives from a guy who knows what he is talking about. Read more
Published on March 23, 2006 by Grigory Vilkov

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