With content developed with input from traders and with examples using
real-world data, this book introduces many of the more commonly
requested products from FX options trading desks, together with the
models that capture the risk characteristics necessary to price these
products accurately. Crucially, this book describes the numerical
methods required for calibration of these models – an area often
neglected in the literature, which is nevertheless of paramount
importance in practice. Thorough treatment is given in one unified text
to the following features:
Correct market conventions for FX volatility surface construction
Adjustment for settlement and delayed delivery of options
Pricing of vanillas and barrier options under the volatility smile
Barrier bending for limiting barrier discontinuity risk near expiry
Industry strength partial differential equations in one and several
spatial variables using finite differences on nonuniform grids
Fourier transform methods for pricing European options using characteristic functions
Stochastic and local volatility models, and a mixed stochastic/local volatility model
Three-factor long-dated FX model
Numerical calibration techniques for all the models in this work
The augmented state variable approach for pricing strongly
path-dependent options using either partial differential equations or
Monte Carlo simulation
Connecting mathematically rigorous theory with practice, this is the
essential guide to foreign exchange options in the context of the real
financial marketplace.
This book is virtually a stand alone reference book on interest rate
swaps, the money markets, financial market mathematics, interest-rate
futures and technical analysis
Includes some introductory coverage of very specialised topics (for
which one requires specialised texts) such as VaR, Asset & liability
management, credit derivatives
Combines accessible style with advanced level topics, plus review of latest research
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