Options on Foreign Exchange. 3rd Edition. Wiley Finance

Transcription

1 Brochure More information from Options on Foreign Exchange. 3rd Edition. Wiley Finance Description: Praise for Options on Foreign Exchange, 3rd Edition "Dr. DeRosa's book provides an excellent introduction to the complicated field of forex options, appropriate for both practitioners and quants, broad enough to cover everything important about markets and deep enough to explain the latest theories." Emanuel Derman, author of My Life as a Quant "DeRosa presents technical material with a minimum of technical fuss. Filtered through his scholarship and practical trading experience, up to date topics such as exotic options, forward volatilities, and the volatility smile become accessible. The book will be extremely useful to asset managers and risk managers." Allan M. Malz, Markets Group, Federal Reserve Bank of New York Similar to past editions, this new Third Edition contains strong sections on spot and forward foreign exchange, interest parity, and foreign exchange futures. There are thorough presentations on the theoretical foundations and practical uses of the core Black Scholes Merton model for currency options. Mixed throughout the book are applications of binomial and trinomial models as well as new sections on numerical methods. American exercise options and currency futures options are also treated. Contents: Preface xi What's New to This Edition xii Before You Begin xii Acknowledgments xiii CHAPTER 1: Foreign Exchange Basics 1 The Foreign Exchange Market 1 The International Monetary System 6 Spot Foreign Exchange and Market Conventions 11 Foreign Exchange Dealing 14 Interest Parity and Forward Foreign Exchange 21 Departures from Covered Interest Parity in CHAPTER 2: Trading Currency Options 29 The Interbank Currency Option Market 29 Option Basics 31 Listed Options on Actual Foreign Currency 38 Currency Futures Contracts 40 Listed Currency Futures Options 44 CHAPTER 3: Valuation of European Currency Options 47

2 Arbitrage Theorems 48 Put Call Parity for European Currency Options 50 The Black Scholes Merton Model 52 How Currency Options Trade in the Interbank Market 60 Reflections on the Contribution of Black, Scholes, and Merton 62 CHAPTER 4: European Currency Option Analytics 65 Base Case Analysis 65 The "Greeks" 66 Special Properties of At the Money Forward Options 77 Directional Trading with Currency Options 79 Hedging with Currency Options 86 Appendix 4.1 Derivation of the BSM Deltas 88 CHAPTER 5: Volatility 91 Alternative Meanings of Volatility 91 Some Volatility History 99 Construction of the Volatility Surface 113 The Vanna Volga Method 115 The Sticky Delta Rule 118 Risk Neutral Densities 118 Dealing in Currency Options 119 Trading Volatility 121 Mixing Directional and Volatility Trading 124 Appendix 5.1 Vanna Volga Approximations 125 CHAPTER 6: American Exercise Currency Options 127 Arbitrage Conditions 127 Put Call Parity for American Currency Options 128 The General Theory of American Currency Option Pricing 131 The Economics of Early Exercise 132 The Binomial Model 136 The Binomial Model for European Currency Options 143 American Currency Options by Approximation 144 Finite Differences Methods 149

3 CHAPTER 7: Currency Futures Options 159 Currency Futures and Their Relationship to Spot and Forward Exchange Rates 159 Arbitrage and Parity Theorems for Currency Futures Options 167 Black's Model for European Currency Futures Options 174 The Valuation of American Currency Futures Options 178 The Quadratic Approximation Model for Futures Options 180 CHAPTER 8: Barrier and Binary Currency Options 183 Single Barrier Currency Options 185 Double Barrier Knock Out Currency Options 193 Binary Currency Options 197 Contingent Premium Currency Options 203 Applying Vanna Volga to Barrier and Binary Options 204 What the Formulas Don't Reveal 205 CHAPTER 9: Advanced Option Models 207 Stochastic Volatility Models 208 The Mixed Jump Diffusion Process Model 211 Local Volatility Models 213 Stochastic Local Volatility 214 Static Replication of Barrier Options 215 Appendix 9.1: Equations for the Heston Model 231 CHAPTER 10: Non Barrier Exotic Currency Options 233 Average Rate Currency Options 233 Compound Currency Options 237 Basket Options 241 Quantos Options 242 Comments on Hedging with Non Barrier Currency Options 250 Appendix 10.1 Monte Carlo Simulation for Arithmetic Mean Average Options 250 Bibliography 253 Index 263 Ordering: Order Online -

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