Developed for the professional Master's program in Computational Finance at Carnegie Mellon, the leading financial engineering program in the U.S. Has been tested in the classroom and revised over a period of several years Exercises conclude every chapter; some of these extend the theory while others are drawn from practical problems in quantitative finance 1. The Binomial No-Arbitrage Pricing Model 1.1. One-Period Binomial Model 1.2. Multiperiod Binomial Model 1.3. Computational Considerations 1.4. Summary 1.5. Notes 1.6. Exercises 2. Probability Theory on Coin Toss Space 2.1. Finite Probability Spaces 2.2. Random Variables, Distributions, and Expectations 2.3. Conditional Expectations 2.4. Martingales 2.5. Markov Processes 2.6. Summary 2.7. Notes 2.8. Exercises 3. State Prices 3.1. Change of Measure 3.2. Radon-Nikod\'ym Derivative Process 3.3. Capital Asset Pricing Model 3.4. Summary 3.5. Notes 3.6. Exercises 4. American Derivative Securities 4.1. Introduction 4.2. Non-Path-Dependent American Derivatives 4.3. Stopping Times 4.4. General American Derivatives 4.5. American Call Options 4.6. Summary 4.7. Notes 4.8. Exercises 5. Random Walk 5.1. Introduction 5.2. First Passage Times 5.3. Reflection Principle 5.4. Perpetual American Put: An Example 5.5. Summary 5.6. Notes 5.7. Exercises 6. Interest-Rate-Dependent Assets 6.1. Introduction 6.2. Binomial Model for Interest Rates 6.3. Fixed-Income Derivatives 6.4. Forward Measures 6.5. Futures 6.6. Summary 6.7. Notes 6.8. Exercises Proof of Fundamental Properties of Conditional Expectations References Index

Written by an experienced trader and consultant, Frans de Weert's Exotic Options Trading offers a risk-focused approach to the pricing of exotic options. By giving readers the necessary tools to understand exotic options, this book serves as a manual to equip the reader with the skills to price and risk manage the most common and the most complex exotic options. De Weert begins by explaining the risks associated with trading an exotic option before dissecting these risks through a detailed analysis of the actual economics and Greeks rather than solely stating the mathematical formulae. The book limits the use of mathematics to explain exotic options from an economic and risk perspective by means of real life examples leading to a practical interpretation of the mathematical pricing formulae. The book covers conventional options, digital options, barrier options, cliquets, quanto options, outperformance options and variance swaps, and explains difficult concepts in simple terms, with a practical approach that gives the reader a full understanding of every aspect of each exotic option. The book also discusses structured notes with exotic options embedded in them, such as reverse convertibles, callable and puttable reverse convertibles and autocallables and shows the rationale behind these structures and their associated risks. For each exotic option, the author makes clear why there is an investor demand; explains where the risks lie and how this affects the actual pricing; shows how best to hedge any vega or gamma exposure embedded in the exotic option and discusses the skew exposure. By explaining the practical implications for every exotic option and how it affects the price, in addition to the necessary mathematical derivations and tools for pricing exotic options, Exotic Options Trading removes the mystique surrounding exotic options in order to give the reader a full understanding of every aspect of each exotic option, creating a useable tool for dealing with exotic options in practice. " Although exotic options are not a new subject in finance, the coverage traditionally afforded by many texts is either too high level or overly mathematical. De Weert's exceptional text fills this gap superbly. It is a rigorous treatment of a number of exotic structures and includes numerous examples to clearly illustrate the principles. What makes this book unique is that it manages to strike a fantastic balance between the theory and actual trading practice. Although it may be something of an overused phrase to describe this book as compulsory reading, I can assure any reader they will not be disappointed. " -Neil Schofield, Training Consultant and author of Commodity Derivatives: Markets and Applications "Exotic Options Trading does an excellent job in providing a succinct and exhaustive overview of exotic options. The real edge of this book is that it explains exotic options from a risk and economical perspective and provides a clear link to the actual profit and pricing formulae. In short, a must read for anyone who wants to get deep insights into exotic options and start trading them profitably. " -Arturo Bignardi Contents Preface Acknowledgements 1 Introduction 2 Conventional Options, Forwards and Greeks 2.1 Call and Put Options and Forwards 2.2 Pricing Calls and Puts 2.3 Implied Volatility 2.4 Determining the Strike of the Forward 2.5 Pricing of Stock Options Including Dividends 2.6 Pricing Options in Terms of the Forward 2.7 Put-Call Parity 2.8 Delta 2.9 Dynamic Hedging 2.10 Gamma 2.11 Vega 2.12 Theta 2.13 Higher Order Derivatives Like Vanna and Vomma 2.14 Option's Interest Rate Exposure in Terms of Financing the Delta Hedge 3 Profit on Gamma and Relation to Theta 4 Delta Cash and Gamma Cash 4.1 Example Delta and Gamma Cash 5 Skew 5.1 Reasons for Higher Realised Volatility in Falling Markets 5.2 Skew Through Time: 'The Term Structure of Skew' 5.3 Skew and Its Effect on Delta 5.4 Skew in FX versus Skew in Equity: 'Smile versus Downward Sloping' 5.5 Pricing Options Using the Skew Curve 6 Simple Option Strategies 6.1 Call Spread 6.2 Put Spread 6.3 Collar 6.4 Straddle 6.5 Strangle 7 Monte Carlo Processes 7.1 Monte Carlo Process Principle 7.2 Binomial Tree versus Monte Carlo Process 7.3 Binomial Tree Example 7.4 The Workings of the Monte Carlo Process 8 Chooser Option 8.1 Pricing Example Simple Chooser Option 8.2 Rationale Behind Chooser Option Strategies 9 Digital Options 9.1 Choosing the Strikes 9.2 The Call Spread as Proxy for the Digital 9.3 Width of the Call Spread versus Gearing 10 Barrier Options 10.1 Down-and-In Put Option 10.2 Delta Change over the Barrier for a Down-and-In Put Option 10.3 Factors Influencing the Magnitude of the Barrier Shift 10.4 Delta Impact of a Barrier Shift 10.5 Situations to Buy Shares in Case of a Barrier Breach of a Long Down-and-In Put 10.6 Up-and-Out Call 10.7 Up-and-Out Call Option with Rebate 10.8 Vega Exposure Up-and-Out Call Option 10.9 Up-and-Out Put 10.10 Barrier Parity 10.11 Barrier at Maturity Only 10.12 Skew and Barrier Options 10.13 Double Barriers 11 Forward Starting Options 11.1 Forward Starting and Regular Option Compared 11.2 Hedging the Skew Delta of the Forward Start Option 11.3 The Forward Start Option and the Skew Term Structure 11.4 Analytically Short Skew but Dynamically No Skew Exposure 11.5 Forward Starting Greeks 12 Ladder Options 12.1 Example Ladder Option 12.2 Pricing the Ladder Option 13 Lookback Options 13.1 Pricing and Gamma Profile of Fixed Strike Lookback Options 13.2 Pricing and Risk of a Floating Strike Lookback Option 14 Cliquets 14.1 The Ratchet Option 14.2 Risks of a Ratchet Option 15 Reverse Convertibles 15.1 Example Knock-in Reverse Convertible 15.2 Pricing the Knock-in Reverse Convertible 15.3 Market Conditions for Most Attractive Coupon 15.4 Hedging the Reverse Convertible 16 Autocallables 16.1 Example Autocallable Reverse Convertible 16.2 Pricing the Autocallable 16.3 Autocallable Pricing without Conditional Coupon 16.4 Interest/Equity Correlation within the Autocallable 17 Callable and Puttable Reverse Convertible 17.1 Pricing the Callable Reverse Convertible 17.2 Pricing the Puttable Reverse Convertible 18 Asian Options 18.1 Pricing the Geometric Asian Out Option 18.2 Pricing the Arithmetic Asian Out Option 18.3 Delta Hedging the Arithmetic Asian Out Option 18.4 Vega, Gamma and Theta of the Arithmetic Asian Out Option 18.5 Delta Hedging the Asian in Option 18.6 Asian in Forward 18.7 Pricing the Asian in Forward 18.8 Asian in Forward with Optional Early Termination 19 Quanto Options 19.1 Pricing and Correlation Risk of the Option 19.2 Hedging FX Exposure on the Quanto Option 20 Composite Options 20.1 An Example of the Composite Option 20.2 Hedging FX Exposure on the Composite Option 21 Outperformance Options 21.1 Example of an Outperformance Option 21.2 Outperformance Option Described as a Composite Option 21.3 Correlation Position of the Outperformance Option 21.4 Hedging of Outperformance Options 22 Best of andWorst of Options 22.1 Correlation Risk for the Best of Option 22.2 Correlation Risk for the Worst of Option 22.3 Hybrids 23 Variance Swaps 23.1 Variance Swap Payoff Example 23.2 Replicating the Variance Swap with Options 23.3 Greeks of the Variance Swap 23.4 Mystery of Gamma Without Delta 23.5 Realised Variance Volatility versus Standard Deviation 23.6 Event Risk of a Variance Swap versus a Single Option 23.7 Relation Between Vega Exposure and Variance Notional 23.8 Skew Delta 23.9 Vega Convexity 24 Dispersion 24.1 Pricing Basket Options 24.2 Basket Volatility Derived From Its Constituents 24.3 Trading Dispersion 24.4 Quoting Dispersion in Terms of Correlation 24.5 Dispersion Means Trading a Combination of Volatility and Correlation 24.6 Ratio'd Vega Dispersion 24.7 Skew Delta Position Embedded in Dispersion 25 Engineering Financial Structures 25.1 Capital Guaranteed Products 25.2 Attractive Market Conditions for Capital Guaranteed Products 25.3 Exposure Products for the Cautious Equity Investor 25.4 Leveraged Products for the Risk Seeking Investor Appendix A Variance of a Composite Option and Outperformance Option Appendix B Replicating the Variance Swap References Index

現代金融の全体像を理論，歴史，現状からバランスよく解説。リーマン・ショックなどを踏まえて10年ぶりに大幅改訂。 現代金融の全体像を理論，歴史，現状からバランスよく解説したスタンダード・テキストを10年ぶりに大幅改訂。第Ⅰ部で金融の基礎的な概念や理論，メカニズムを，第Ⅱ部で日本の金融制度や政策を，第Ⅲ部でグローバル時代における現代金融の諸問題をわかりやすく解説。 第Ⅰ部　現代金融の基礎 　第１章　貨幣と金融（川波洋一） 　第２章　金融機関と銀行業（青山和司） 　第３章　企業・家計と金融（前田真一郎） 　第４章　金融市場と金融資産（三谷進） 　第５章　管理通貨制と中央銀行（近廣昌志） 第Ⅱ部　現代金融と日本経済 　第６章　景気変動と金融危機（川波洋一） 　第７章　現代の金融業（掛下達郎） 　第８章　国債膨張下の財政と金融（吉川哲生） 　第９章　金融政策の新展開（森田京平） 　第10章　金融規制と金融制度改革（山村延郎） 　第11章　地域金融（齊藤正） 第Ⅲ部　グローバル化と現代金融 　第12章　グローバル化と情報技術革新 （遠藤幸彦） 　第13章　金融業の変貌とグローバル展開 （木村秀史） 　第14章　グローバル化と主要国の金融システム（伊鹿倉正司） 　第15章　金融のグローバル化と国際金融システム（上川孝夫） 　第16章　グローバル化のなかの円（上川孝夫）

複雑でわかりにくい金融の理論や仕組みを，図表や事例を豊富に用いて丁寧に解説。学習にも実務にも使える決定版テキスト。 初学者には馴染みのない金融の専門用語から，証券化や投資信託といった複雑でわかりにくい金融の仕組み，マイナス金利やマクロプルーデンスなどの最新の金融政策までを幅広くカバーし，図表や事例を豊富に用いて丁寧に解説。学習にも実務にも使える決定版テキスト。 第Ⅰ部　貨幣と金融取引 　第１章　貨幣と決済 　第２章　金融とその機能 　第３章　取引費用とリスク 　第４章　情報の非対称性と返済のリスク 第Ⅱ部　取引費用に対処する金融の仕組み 　第５章　金融の仕組み⑴：流動化，証券設計，情報生産 　第６章　金融の仕組み⑵：担保，保証 　第７章　金融の仕組み⑶：分散化 第Ⅲ部　金融機関と金融市場 　第８章　金融機関⑴：金融仲介機関 　第９章　金融市場 　第10章　金融機関⑵：金融仲介機関以外の金融機関 第Ⅳ部　金融のマクロ的側面 　第11章　資金循環と金融システム 　第12章　金融政策と経済の実物面・金融面 　第13章　金融システムの問題と金融危機 　第14章　金融制度と公的介入・プルーデンス政策