The handbook of exotic options: instruments, analysis, and applications
The Handbook of Exotic Options is the first book to explain the theoretical foundations, structures, and applications of these exciting new instruments. Edited by Israel Nelken, one of the foremost experts in the field, this handbook provides an in-depth explanation of the latest uses of exotic opti...
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| Format: | Book |
|---|---|
| Language: | English |
| Published: |
Chicago [u.a.]
Irwin
1996
|
| Subjects: | |
| Online Access: | Inhaltsverzeichnis |
| Summary: | The Handbook of Exotic Options is the first book to explain the theoretical foundations, structures, and applications of these exciting new instruments. Edited by Israel Nelken, one of the foremost experts in the field, this handbook provides an in-depth explanation of the latest uses of exotic options by institutional investors and corporate treasurers, as well as the latest thinking on advanced topics. |
| Physical Description: | XXII, 362 S. graph. Darst. 1 Diskette ; 9 cm |
| ISBN: | 1557389047 |
Staff View
MARC
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| 245 | 1 | 0 | |a The handbook of exotic options |b instruments, analysis, and applications |c ed. by Israel Nelken |
| 264 | 1 | |a Chicago [u.a.] |b Irwin |c 1996 | |
| 300 | |a XXII, 362 S. |b graph. Darst. |e 1 Diskette ; 9 cm | ||
| 336 | |b txt |2 rdacontent | ||
| 337 | |b n |2 rdamedia | ||
| 338 | |b nc |2 rdacarrier | ||
| 520 | 3 | |a The Handbook of Exotic Options is the first book to explain the theoretical foundations, structures, and applications of these exciting new instruments. Edited by Israel Nelken, one of the foremost experts in the field, this handbook provides an in-depth explanation of the latest uses of exotic options by institutional investors and corporate treasurers, as well as the latest thinking on advanced topics. | |
| 650 | 4 | |a Gestion de portefeuille | |
| 650 | 4 | |a Gestion de portefeuille - Logiciels | |
| 650 | 4 | |a Options exotiques (Finances) | |
| 650 | 4 | |a Options exotiques (Finances) - Logiciels | |
| 650 | 4 | |a Exotic options (Finance) | |
| 650 | 4 | |a Portfolio management |v Software | |
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Record in the Search Index
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|---|---|
| adam_text | Contents
Preface vii
About the Contributors viii
Parti
INTRODUCTION TO EXOTIC OPTIONS 1
Chapter One
EXOTIC OPTIONS: THE MARKET AND
THEIR TAXONOMY 3
Introduction, 3
Evolution Toward Exotic Options, 6
Exotica Temere, 8
Market for Exotic Options, 9
Taxonomy of Exotic Options, 10
Terminal Payoff Functions, 13
Path Dependent, 14
Singular Payoffs, 22
Time Dependent or Preference, 27
Multivariate, 28
Nested or Compounded, 35
Leveraged, 37
Embeddos, 39
Pricing Exotic Options and Structures, 43
Epilogue, 44
Chapter Two
EXOTIC OPTIONS: THE BASIC BUILDING
BLOCKS AND THEIR APPLICATIONS 45
xiii
xiv Contents
Introduction, 45
Vanilla Options and Their Limitations, 46
Demystifying Exotic Options Through Examples, 50
Average Rate Options, 50
Basket Options, 54
Binary Options, 58
Chooser Options, 61
Compound Options, 65
Extrema Options, 69
Forward Start Options, 71
Lookback Options, 74
Mid Atlantic Options, 78
Nonlinear Payoff Options, 79
Product Options, 82
Shout Options, 85
Spread Options, 89
Sudden Birth/Death Options, 92
Conclusion, 96
References, 97
Chapter Three
WHEN TO USE EXOTIC DERIVATIVES
Introduction: Exotic Derivatives or Customized Risk
Management?, 99
When Not to Use Exotic Derivatives: A Check List, 101
When to Use Exotic Derivatives: Progressive Case
Study #A1, 102
The Gold Producer, 102
Assumptions, 102
Question, 102
Answer #1, 102
Discussion, 103
Answer #2, 104
Discussion, 105
Contents xv
Answer #3, 105
Discussion, 105
Answer #4, 106
When to Use Exotic Derivatives: Progressive Case
Study #A2, 107
The Refinery, 107
Assumptions, 107
Question, 107
Answer #1, 107
Discussion, 107
Answer #2, 108
Discussion, 108
Answer #3, 109
Discussion, 109
Answer #4, 109
Discussion, 110
Answer #5, 110
Discussion, 110
Summary of Custom Derivative Strategy: (A) Complex to
Simple Exposure, 110
When to Use Exotic Derivatives: Progressive Case
Study #B1, 111
Assumptions, 111
Question, 112
Answer #1, 112
Discussion, 112
Answer #2, 112
Discussion, 113
Answer #3, 113
Discussion, 113
Answer #4, 113
Discussion, 114
Summary, 114
xvi Contents
When to Use Exotic Derivatives: Constructive Case
Study #B2, 114
When Are Simple Option Strategies Optimal? 118
When to Use Exotic Derivatives: Constructive Case
Study #B3, 119
Summary of Custom Derivative Strategy: (B) Simple to
Complex Exposure, 123
Conclusion, 124
Part II
PRODUCTS AND APPLICATIONS 127
Chapter Four
COMPOUND OPTIONS AND
CHOOSER OPTIONS 129
Introduction, 129
A European Option, 130
A Chooser Option, 131
A Compound Option, 133
Nonlinear Equations, 134
Integration, 135
Numerical Quadrature, 136
Q1DA, 137
Numerical Examples, 139
Installment Warrants, 140
References, 141
Chapter Five
TWO COLOR RAINBOW OPTIONS l43
Introduction, 143
Two Pricing Strategies, 145
The Basic Mathematical Model, 146
The Risk Adjusted Probability, 147
The Partial Differential Equation, 147
Hedging, 150
Contents xvii
The Black Scholes Function, 150
The Red Book of MAOs I: Single Currency, 150
Margrabe s Formula for Spread Options, 151
Stulz s Formula for Calls and Puts on the Worst or Best of
Two Assets, 155
Basket Options, 161
The Red Book of MAOs II: Two Currencies, 163
The Mathematical Model, 163
The Stochastics of the Derivative s Price, 164
The Replicating Portfolio and the PDE, 165
Flexo Options, 166
Compo Options, 167
Quanto Options, 169
Beach Options, 171
References, 173
Chapter Six
AVERAGING OPTIONS 175
Introduction, 175
Hedging with Asian Options, 176
Valuation of Asian Options, 179
Monte Carlo Simulation, 180
Vorst s Approximation, 181
Levy s Approximation, 181
The Turnbull and Wakeman Approximation, 186
The Rogers and Shi Approximation, 186
Other Valuation Methods, 188
More on Asian Valuation, 189
Accuracy of Approximations, 189
The Number of Days in the Average, 190
Extension to Points in the Averaging Interval, 191
Put Call Parity for Asian Options, 193
Hedge Ratios, 194
Floating Strike and Flexible Asian Options, 195
xviii Contents
Interest Rate Asian Options, 196
Conclusions, 197
References, 198
Chapter Seven
THE LOG CONTRACT AND OTHER
POWER CONTRACTS 200
Introduction, 200
The Demand for Options—Sixth Century B.C., 201
The Demand for Options—Twentieth Century a.d., 203
Why Do Institutional Investors Use Options Today? 203
Greeks in the Twentieth Century, 204
Problems with Call Options, 205
Hedging the Log Contract, 208
Pure Bets on Volatility, 211
Generalizing the Log Contract, 211
Conclusions, 212
References, 212
Chapter Eight
BARRIER OPTIONS 213
Introduction, 213
What are Barrier Options? 214
Terms, 214
Motivation for Using Barrier Options, 216
Motivation against Using Barrier Options, 217
Path Independence and Path Dependence, 218
A Continuously Monitored Barrier, 219
Notation, 219
Valuation Formulas, 220
Partial Barrier Options, 226
Special Case: American Capped Call, 227
Double Barrier Option Valuation, 228
Notation, 229
Contents xix
Valuation Formulas, 230
Lemma 7 (Formula for Q), 230
A Discretely Monitored Barrier, 232
Numerical Issues, 234
Hedging, 235
Appendix 235
Proof of Proposition 1, 236
Proposition 13 (Useful Identities), 239
Corollary 14, 239
Corollary 15, 239
Proof of Proposition 2, 239
Proof of Proposition 3, 240
Proof of Proposition 6, 240
References, 241
Chapter Nine
OUTPERFORMANCE OPTIONS 244
Introduction, 244
The Payoff, 244
The Financial Principle of Relativity of Currency, 245
Notation, 246
The Outperformance Option s Value in B Shares, 247
The Outperformance Option s Value in Dollars, 247
Hedging Outperformance Options, 247
Hedging and Scaling, 248
American Style Options Valuation, 250
The Real World, 250
Chapter Ten
VOLATILITY INSENSITIVE
OPTION STRUCTURES 251
Introduction, 251
Motivation, 251
Unknown Volatility, 251
xx Contents
Uncertain Volatility, 251
Affordable Options in High Volatility Situations, 251
Generic Pricing, 254
Duration Insensitivity, 255
Structures, 255
Plain Options, 255
Synthetics, 256
Collars and Spreads, 257
Barrier Options, 259
Exploding Options, 263
Custom Designed Derivative Structures, 267
Summary, 269
Part 111
PRICING AND MODELING 271
Chapter Eleven
OVERVIEW OF MODELING TECHNIQUES 273
Introduction, 273
The Mathematics of Arbitrage Freeness, 276
Excursions in Solution Space, 281
Analytic Solutions, 281
Partial Differential Equation Solutions, 282
Monte Carlo Methods, 285
Handling Term Structures, 289
References, 291
Chapter Twelve
VOLATILITY IS NOT CONSTANT 293
Introduction, 293
A Numerical Example, 294
A Trinomial Tree Approach, 300
The Volatility Smile, 305
,, , xxi
Contents
Incorporating the Smile with a Trinomial Tree, 309
Arrow Debreu Prices, 310
Computing the Probabilities, 312
Conclusion, 314
References, 314
Chapter Thirteen
VALUATION OF EXOTIC OPTIONS USING
THE MONTE CARLO METHOD 316
Introduction, 316
The Standard Monte Carlo Method, 318
Valuation of Average Price Oil Options before the
Gulf War, 319
The Use of Low Discrepancy Sequences, 322
Valuation of Asian Options Using
Low Discrepancy Sequences, 324
Conclusion, 325
References, 326
Part IV
RISK 327
Chapter Fourteen
VISUALIZING RISK 329
Standard Hedging and Risk Evaluation Techniques, 329
Visualization of Risk with Virtual Reality, 330
Examples, 331
Visualizing Exotic Options, 334
Further Applications, 336
Chapter Fifteen
RISK MANAGEMENT FOR GLOBAL
DERIVATIVE PORTFOLIOS 340
Introduction, 340
Objectives of Risk Management, 341
xxii Contents
Risk Reports, 342
Sources of Revenue and Risk, 342
Measurement of Current Risk and Exposure, 343
Measurement of Future Risk and Exposure, 343
Conclusion, 345
Appendix
EXOTICOP!© 347
Installation, 347
Overview, 347
Initiation and Execution, 348
Choose an Underlying, 348
Choose a Compounding Frequency, 348
Details of Underlying, 348
Frozen Variables, 349
Unrestricted Program, 349
Portfolio, 349
Background, 350
Errors, 350
File Functions, 350
Portfolio Functions, 351
Navigation, 351
Example, 351
On Line Help, 358
Scenario Analysis, 359
Index 360
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| indexdate | 2024-07-09T18:07:15Z |
| institution | BVB |
| isbn | 1557389047 |
| language | English |
| oai_aleph_id | oai:aleph.bib-bvb.de:BVB01-007582745 |
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| physical | XXII, 362 S. graph. Darst. 1 Diskette ; 9 cm |
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| spelling | The handbook of exotic options instruments, analysis, and applications ed. by Israel Nelken Chicago [u.a.] Irwin 1996 XXII, 362 S. graph. Darst. 1 Diskette ; 9 cm txt rdacontent n rdamedia nc rdacarrier The Handbook of Exotic Options is the first book to explain the theoretical foundations, structures, and applications of these exciting new instruments. Edited by Israel Nelken, one of the foremost experts in the field, this handbook provides an in-depth explanation of the latest uses of exotic options by institutional investors and corporate treasurers, as well as the latest thinking on advanced topics. Gestion de portefeuille Gestion de portefeuille - Logiciels Options exotiques (Finances) Options exotiques (Finances) - Logiciels Exotic options (Finance) Portfolio management Software Exotic options (DE-588)4450269-2 gnd rswk-swf Optionshandel (DE-588)4126185-9 gnd rswk-swf Optionshandel (DE-588)4126185-9 s DE-604 Exotic options (DE-588)4450269-2 s Nelken, Israel Sonstige oth HBZ Datenaustausch application/pdf http://bvbr.bib-bvb.de:8991/F?func=service&doc_library=BVB01&local_base=BVB01&doc_number=007582745&sequence=000002&line_number=0001&func_code=DB_RECORDS&service_type=MEDIA Inhaltsverzeichnis |
| spellingShingle | The handbook of exotic options instruments, analysis, and applications Gestion de portefeuille Gestion de portefeuille - Logiciels Options exotiques (Finances) Options exotiques (Finances) - Logiciels Exotic options (Finance) Portfolio management Software Exotic options (DE-588)4450269-2 gnd Optionshandel (DE-588)4126185-9 gnd |
| subject_GND | (DE-588)4450269-2 (DE-588)4126185-9 |
| title | The handbook of exotic options instruments, analysis, and applications |
| title_auth | The handbook of exotic options instruments, analysis, and applications |
| title_exact_search | The handbook of exotic options instruments, analysis, and applications |
| title_full | The handbook of exotic options instruments, analysis, and applications ed. by Israel Nelken |
| title_fullStr | The handbook of exotic options instruments, analysis, and applications ed. by Israel Nelken |
| title_full_unstemmed | The handbook of exotic options instruments, analysis, and applications ed. by Israel Nelken |
| title_short | The handbook of exotic options |
| title_sort | the handbook of exotic options instruments analysis and applications |
| title_sub | instruments, analysis, and applications |
| topic | Gestion de portefeuille Gestion de portefeuille - Logiciels Options exotiques (Finances) Options exotiques (Finances) - Logiciels Exotic options (Finance) Portfolio management Software Exotic options (DE-588)4450269-2 gnd Optionshandel (DE-588)4126185-9 gnd |
| topic_facet | Gestion de portefeuille Gestion de portefeuille - Logiciels Options exotiques (Finances) Options exotiques (Finances) - Logiciels Exotic options (Finance) Portfolio management Software Exotic options Optionshandel |
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