Dynamic Hedging英文印影PDF版下载

Dynamic Hedging英文版的各种技巧主意事项 方法 工具refacethrough book-running. This book will introduce the arcane world of dynamic monitoring of risks. The core of dynamic hedging includesThe need for a methodology for the implementation of the Black-Scholes-Merton replicating process for options or any other nonlin-ear security under the constraints imposed by the marketplaceThe need to generalize the Black-Scholes-Merton framework to coverother parameters than the underlying security in the replicating process (like volatility or interest rates)The awareness that transaction costs and frequency can cause a departure from the canons of continuous time financeThe awareness that distributions are unstable and hard to modelMuch of the common option literature has been concerned with detailsof the pricing of instruments(some of which remain untractable) . Theseworks often provide insignificant answers to insignificant problems, suchas the search for precision in the pricing of American options with constantvolatility or interest rates(penny wisdom and dollar insensitivity). In addi-tion, the nontheoretical option literature, departing from the Black-ScholesMerton framework, has been ensconced in static risk measurement. Mostdocuments introducing traders to conventional risks show only the static,not the dynamic, risks. a derivatives position that is dynamically hedgedwill be subjected to an entirely different risk profile and, given the limitations of such hedging, will therefore be subjected to path dependence(a keyword for an option manufacturer)Readers will not find a magazine-ty pe proliferation of traded exoticstructures that delineate infinite variations and combinations, instead, theanalysis is limited to the nondecomposable structures(the SDF, smallestdecomposable fragment). A structure that is the addition of two productswill be therefore excluded (except in few cases of nonadditivity, where thecombination has some merit for the dynamic hedger). The objective of thisbook is to provide the traders and risk managers with the tools not theramificationsReaders should use this book like a roadmap searching out topics thatinterest them and moving freely from topic to topic. The formal definitionsserve as anchors between categoriesMore advanced mathematical topics are relegated to the modules atthe back of the book An attempt has been made to avoid mathematicallanguage and to explain issues in plain English. Formulas do not appearuntil Chapter 22. In addition, in the presentation of mathematical elements, the book avoids the measure-theoretic framework (required formost proofs in probability theory)and follows an intuitive path. MostPreface vilmathematical concepts surrounding the topic can be explained with an intuitive verbal description accompanied by graphical hintsOption Wizards provide a lighter note for many serious topics. Sincehese sections are designed to be read independently, readers can flip be-tween them at their discretionFinally, throughout this book, the pronoun he is used as a stylistic convention for ease of reading. This use should always be construed as genderneutralPart I( Chapters 1-6) defines market microstructure and products.The markets are viewed from the vantage point of broker speakerboxes and market pits, but also are defined in the formal setting ofmarket microstructure theory.Part II(Chapters 7-16) defines the basics of vanilla option risk andpresents measurement tools.Part Ill (Chapters 17-23 )describes the risks of exotic optionsPart IV(Modules a to G) presents more quantitative tools of analysis and bridges a practitioners world with option theory. Thesemodules, however, should not be construed as appendixes: Most oftheir content belong to the core of the textNOTES ON THE TEXTGiven that i did not initially learn about options in the literature but di-rectly from the market(through observation and experimentation), most ofmy reasoning remains highly intuitive. I apologize to people with morescholastic tastes who may not be used to such a presentation. Most examoles in this book are presented as generic situations. The volatility will bedefined as 15.7%(to make one standard deviation equal to 1% daily move)The markets will be scaled to trade at 100. For the purposes of pure optionsituations, the forward is equal to spot, and the financial carry is insignifi-cant(except in the rare difficult cases where it matters). All options will beEuropean style except for the exotic options where a term structure maybe introduced if it becomes relevant for the exerciseShowing the profile of a butterfly, for example, will involve using98/100/102 generic calls and studying a calendar spread looking at thethree-month 100 against the 6-month 100 calls, and so onThe creation of generic examples will standardize all cases and helpin equating situations throughout the book. When dealing with a purelyconceptual option problem, it is necessary to strip out the underlying particularities. Optionality transcends the details in most cases. where theseparticularities are essential, we will revert to a singular example taken froma specific marketNotationsP/LProfit and loss on a positionV or fReserved for the value of a generic derivative securityKStrike priceUnderlying asset at time oHOutstrike(barrier strikeH andh High and low outstrikes for a double barrierInterest rate for the numeraire(also rorRates for the counter-currency or the dividend payout fora stockero-coupon yield period tTime between present until expiration(except in caseswhere to is the present, where it becomes t -toStandard deviation of the natural log of the prices of theasset 1Correlation of the natural log of the prices betweenassets i ando(S)Conditional expectation at times 0 of the price of theasset at times targonMany terms may be linguistically ambiguous for people from outside theindustry. Even option books written for practitioners do not seem to pickup our vernacular.The same designation delta is used for both the rate and the total equiv-alent exposure(rate times face value). The same for gamma, vega, theta, andother greeksBy" volatility"is always meant implied volatility, not historical. By 15volatility read 15% implied volatility for the instrument in annualizedtermsByunderlyingis meant underlying asset, which is also called spot,cash price(as opposed to forward or fature)By 50 cents price" for an option is always meant.5% of face value. By1dollar"is meant 1%. Bytick"or"pip"is meant. 01%of face valueBy long the 100"read long the 100 strikeBy" shorter"and"longer"option read option with shorter time to expirationBy leg"is meant one side of a trade in a strategyBy Black-Scholes-Merton "is meant the Black-Scholes-Merton optionvaluation model, as well as its extensions to more complex securitiesBy stopping time"or first exit"read expected stopping time or ex-pected first exit timeBy high correlation matrix"read a correlation matrix with most parameters close to 1Byintegralis often meant stochastic integral By" sensitivity to a parameter" is meant comparative static sensitivity to a parameter change by thedelta vanishes asymptoticallyis meant that the delta vanishes asymptotically to the asset priceBy x/2 y is meant (x /2)y and a b/2 means a+(b/2)Finally, the term derivative, can mean either a derivative security or themathematical rate of change. When possible, the text will specify if it is amathematical derivative; otherwise it should be construed as being a securityNASSIM TALEBLarchmont, New yorkNovember 1996ContentsIntroduction Dynamic HedgingPrinciples of real World Dynamic Hedging 1General risk management 3PART IMARKETS, INSTRUMENTS, PEOPLE1 Introduction to the instrumentsDerivatives 9Synthetic Securities 12Time-Dependent linear derivatives 13Noncontingent Time-Dependent Nonlinear derivatives 16Options and other Contingent claims 16Simple Options 18Hard and Soft Optionality 20Basic rules of options equivalence 20Mirror Image rule 22American Options, Early Exercise, and Other Headaches(Advanced Topic) 24Soft American Options 24Hard American Options 25A Brief Warning about Early Exercise Tests 27Forwards, Futures, and forward -Forwards(Advanced Topic) 29Credit 30Marks-to-Market Differences 30The Correlation between the future andthe Financing(Advanced Issue) 31Forward-Forward 32Core risk management: Distinction between Primary andSecondary risks 32Applying the Framework to Specific Instruments 35XIxii Contents2 The Generalized Option38Step 1. The Homogeneity of the Structure 38Step 2. The Type of Payoff: Continuousand discontinuous 41Step 3. Barriers 43Step 4. Dimension of the Structure and the numberof assets 43Step 5. Order of the Options 45Step 6. Path Dependence 463 Market Making and Market Using48Book runners versus price Takers 48Commoditized and nonstandard products 50Trading Risks in Commoditized Products 51Profitability 53Proprietary departments 54Tacit Rules in Market Making 56Market making and the price for Immediacy 57Market making and autocorrelation of Price Changes 58Market Making and the Illusion of Profitability 58Adverse Selection, Signaling, and the Risk managemenof market Makers 60Value Trading versus the greater Fool Theory 62Monkeys on a Typewriter 64The Statistical Value of track records 64More modern methods of Monitoring Traders 65The Fair dice and the dubins-Savage optimalStrategy 65The arcSine law of the P/L 664 Liquidity and liquidity Holes68Liquidity 68Liquidity holes 69Liquidity and risk management 70Stop Orders and the Path of liquidity 70Barrier Options and the Liquidity Vacuum 72One-Way Liquidity Traps 73Holes, black-scholes, and the llls of memory 73Limits and market failures 74Reverse slippage 74Liquidity and Triple Witching Hour 75Contents xiiiPortfolio insurance 75Liquidity and Option Pricing 775 Arbitrage and the arbitrageurs80A Traders definition 80Mechanical versus Behavioral Stability 81The deterministic relationships 82Passive Arbitrage 83An Absorbing Barrier Called the "Squeeze"84Duration of the Arbitrage 84Arbitrage and the Accounting Systems 85Other nonmarket Forms of arbitrage 86Arbitrage and the variance of returns 876 Volatility and Correlation88Calculating historical volatility and correlation 92Centering around the mean 92troducing Filtering 95There Is No Such Thing as Constant Volatility andCorrelation 97The Parkinson number and the variance ratio method 101PART IIMEASURING OPTION RISKSThe Real world and the black-Scholes-mertonssumptions 109Black-Scholes-Merton as an almost nonparametricPricing System 1097 Adapting Black-Scholes-Merton: The Delta115Characteristics of a delta 116The Continuous Time delta is not always a hedge ratio 116Delta as a measure for Risk 121Confusion delta by the cash or by the forward 123Delta for Linear Instruments: 123Delta for a forward 123Delta for a Forward-Forward 125Delta for a future 125Delta and the Barrier Options 126xiv ContentsDelta and the Bucketing 127Delta in the value at risk 127Delta, Volatility, and Extreme Volatility 1278 Gamma and shadow Gamma132Simple gamma 132Gamma Imperfections for a Book 133Correction for the gamma of the back month 136First adjustment 137Second Adjustment 138Shadow Gamma 138Shadow Gamma and the skew 142GARCH Gamma 142Advanced shadow Gamma 142Case Study in Shadow Gamma: The Syldavian Elections 1459 Vega and the Volatility Surface147Vega and Modified Vega 147Vega and the gamma 149The Modified Vega 150low to Compute the Simple Weightings 151Advanced Method The Covariance Bucket Vega 153Forward Implied Volatilities 154Computing Forward Implied Volatility 154Multifactor Vega 158Volatility Surface 164The Method of Squares for Risk Management 16410 Theta and Minor Greeks167Theta and the modified Theta 167Modifying the Theta 167Theta for a bet 169Theta, Interest Carry, and Self-Financing Strategies. 169Shadow Theta 170Weakness of the Theta Measure 171Minor greeks 171Rho, Modified rho 171Omega(Option Duration) 174Alpha 178