Options, Futures, and Exotic Derivatives

<body stylesrc="../_private/template_title.htm" topmargin="10" leftmargin="10" bgcolor="#FFFFFF" link="#333366" vlink="#000000" alink="#000000"> <div align="left"> <table border="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" cellpadding="0" id="table2"> <tr> <td width="780" align="center"> <div align="center"> <table border="0" cellpadding="5" cellspacing="0" height="206" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table3"> <tr> <td align="right" height="198" width="1%"> <p align="left"> <img border="0" src="../images/book_briys_et_al_(1998).gif" width="148" height="200"></td> <td valign="top" align="left" height="198"> <table border="0" cellspacing="1" style="border-collapse: collapse" bordercolor="#111111" cellpadding="0" id="table4"> <tr> <td colspan="3" width="0%"> <p class="book_title">Options, Futures, and Exotic Derivatives</td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> <img border="0" src="../images/blank_2x2.gif" width="2" height="2"><img border="0" src="../images/blank_2x2.gif" width="2" height="2"></td> <td width="52%" class="book_details_tags" valign="top" height="144" align="left" rowspan="9"> <map name="FPMap2"> <area href="../main/ratings.htm" shape="rect" coords="73, 0, 162, 33"> </map> <img border="0" src="../images_title/briys_25.gif" usemap="#FPMap2" width="163" height="158"></td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="bottom" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" height="32" align="center" width="50%" rowspan="2"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> </tr> </table> </td> </tr> </table> <table border="0" cellpadding="10" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="468" id="table5"> <tr> <td> <script type="text/javascript"></script> <script type="text/javascript" src="http://pagead2.googlesyndication.com/pagead/show_ads.js"> </script> </td></tr> </table> </div> <table border="0" cellpadding="5" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table6"> <tr> <td width="50%" valign="top"> <p align="left" class="body" style="margin-top: 0"><strong style="font-weight: 400">This is an interesting book that describes the state-of-the-art of financial engineering during the mid-1990s. At that point, researchers had discovered closed-form solutions for pricing most standard exotic derivatives. They were starting to favor the "stochastic calculus" approach to derivatives pricing over the "differential equations" approach. In years to come, all the nice closed-form solutions would largely be abandoned—at least by derivatives dealers—in favor of numerical solutions that accommodate volatility skew. </strong></p> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="125" align="left" id="table7"> <tr> <td width="120"> <script type="text/javascript"></script> <script type="text/javascript" src="http://pagead2.googlesyndication.com/pagead/show_ads.js"> </script> </td><td width="5"> </td> </tr> </table> <p align="left" class="body"><strong style="font-weight: 400">Financial engineering is changing so rapidly, it is hard for a student to get oriented. Because this book describes financial engineering at a simpler time, it can be a valuable supplement for more up-to-date books. </strong></p> <p align="left" class="body"><strong style="font-weight: 400">The book starts by motivating a need for financial engineering in corporate finance. It then turns to stochastic calculus and the theory of financial engineering. While informal and quite intuitive, this material will not be accessible to anyone seeing it for the first time. If you already have some familiarity with this material, the treatment will be accessible as a review.</strong></p> <p align="left" class="body"><strong style="font-weight: 400">Three chapters discuss plain vanilla options and the Greeks. Three chapters discuss fixed income models. Three more chapters discuss modeling techniques:</strong></p> <p align="left" class="bullet"> <img border="0" src="../images/bullet.gif" width="20" height="10">jump processes and stochastic volatility</p> <p align="left" class="bullet"> <img border="0" src="../images/bullet.gif" width="20" height="10">lattice models</p> <p align="left" class="bullet"> <img border="0" src="../images/bullet.gif" width="20" height="10">numerical methods applicable to American options.</p> <p align="left" class="body"><strong style="font-weight: 400">I think the best part of the book is the final seven chapters. These look at the pricing challenges posed by various exotics and describe (primarily closed-form) solutions for them. They provide formulas and cite references. </strong></p> </td> <td width="50%" valign="top" class="body" rowspan="2"> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table8"> <tr> <td width="100%" bgcolor="#333366"> <p class="header_yellow" align="center">Contents</td> </tr> <tr> <td width="100%" class="explanatory_text"> <table border="1" cellpadding="0" cellspacing="5" style="border-collapse: collapse" bordercolor="#CCCCFF" bgcolor="#CCCCFF" width="100%" id="table9"> <tr> <td class="contents_expanded"> <p class="contents_expanded">1. Financial Markets, Innovation and Trading Activity</p> <p class="contents_expanded">2. The Dynamics of Asset Prices: Analysis and Applications</p> <p class="contents_expanded">3. Applications to Asset and Derivative Asset Pricing in Complete Markets</p> <p class="contents_expanded">4. Asset Pricing in Complete Markets: Changing Numeraire and Time</p> <p class="contents_expanded">5. Analytical European Option Pricing Models</p> <p class="contents_expanded">6. Monitoring and Management of Option Positions</p> <p class="contents_expanded">7. Extension to American Options: Dividends and Early Exercise</p> <p class="contents_expanded">8. Generalization to Stochastic Interest Rates</p> <p class="contents_expanded">9. Pricing Corporate Bonds</p> <p class="contents_expanded">10. Pricing Insurance Linked Bonds</p> <p class="contents_expanded">11. Further Generalization to Jump Processes, Stochastic Volatilities and Information Costs</p> <p class="contents_expanded">12. The Lattice Approach and the Binomial Model</p> <p class="contents_expanded">13. Numerical Methods for American Option Pricing</p> <p class="contents_expanded">14. Exchange, Forward Start and Chooser Options</p> <p class="contents_expanded">15. Rainbow Options</p> <p class="contents_expanded">16. Extendible Options</p> <p class="contents_expanded">17. Foreign Currency Options and Hybrid Securities</p> <p class="contents_expanded">18. Binaries and Barriers</p> <p class="contents_expanded">19. Lookback Options</p> <p class="contents_expanded">20. Asian and Flexible Asian Options</td> </tr> </table> <p align="left" class="body"><strong style="font-weight: 400">In many respects, this book is a more substantive version of Haug (<a href="../titles/haug_e_(1997).htm">1997</a>). Both books cover similar material, but Haug focuses on results while this book describes the reasons why as well.</strong></p> <p align="left" class="body"><strong style="font-weight: 400">Who is the book for? For end users, many of the old formulas for pricing options are still valuable because they are easily implemented and good enough for "keeping dealers honest." Primarily, I recommend the book for budding financial engineers. It is out of date, but its dated perspective remains valuable. It is like learning how to use a log table to take a cube root—doing so is unnecessary in the age of calculators and computers, but it is still intellectually valuable for the insights it lends.</strong></p> <p align="center" class="body"> <noscript></noscript> </p> <p> </td> </tr> </table> </td> </tr> <tr> <td width="50%" valign="bottom"> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table10"> <tr> <td width="100%"> <script type="text/javascript"></script> <script type="text/javascript" src="http://pagead2.googlesyndication.com/pagead/show_ads.js"> </script> </td></tr> </table> </td> </tr> </table> <div align="left"> <table border="0" cellpadding="10" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" bgcolor="#FFFFCC" id="table11"> <tr> <td width="100%"> <div align="center"> <center> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" bgcolor="#FFFFCC" id="table12"> <tr> <td> <p class="body" style="margin-bottom: 6; margin-left:10"><b><font color="#333366" size="3">For related books, see sections:</font></b></p> <p class="bullet" style="margin-left: 10; margin-top:5; margin-bottom:5"> <img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/financial_engineering_basic.htm">Financial Engineering - Basic Theory</a></p> <p class="bullet" style="margin-left: 10; margin-top:5; margin-bottom:5"> <img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/markets_industries_derivatives.htm">Markets - Derivatives</a></td> </tr> </table> </center> </div> </td> </tr> </table> </div> </td> <td>  </td> </tr> </table> </div>  <table border="0" style="border-collapse: collapse" width="100%" cellpadding="0" id="table1" bgcolor="#FFFFFF"> <tr> <td colspan="2" height="12"> <p style="margin-top: 0"> </td> </tr> <tr> <td align="right"> <p align="left" style="margin-bottom: 2px"> <a target="_top" href="http://www.riskexpertise.com/link/advertising.htm"> <font size="1" color="#000000" face="Arial">Ads by Contingency Analysis.</font></a></td> <td align="left"> <p align="right" style="margin-bottom: 2px"> <a target="_top" href="http://www.riskexpertise.com/link/advertising.htm"> <font size="1" color="#000000" face="Arial">Advertise on this site.</font></a></td> </tr> <tr> <td align="center" colspan="2">  <iframe src="http://servedbyadbutler.com/adserve/;ID=147917;size=300x250;setID=93136;type=iframe" allowtransparency="true" background-color="transparent" style="margin: 0px; padding: 0px; border-width: 0px" width="300" height="250" frameborder="0" marginwidth="0" marginheight="0" scrolling="no"> <![if lt IE 4]> <script src="http://servedbyadbutler.com/adserve/;ID=147917;size=300x250;setID=93136;type=js" type="text/javascript"> </script> <noscript> <a href="http://servedbyadbutler.com/go2/;ID=147917;size=300x250;setID=93136"> <img src="http://servedbyadbutler.com/adserve/;ID=147917;size=300x250;setID=93136;type=img" border="0" height="250" width="300" alt=""></a> </noscript><![endif]> </iframe>   </td> </tr> </table> <p align="center" style="margin-top: 20"> <map name="FPMap0_I1"> <area href="http://www.riskbook.com" shape="rect" coords="0, 0, 184, 29" target="_top"></map> <img border="0" src="../images/open_book_riskbook.gif" usemap="#FPMap0_I1" width="185" height="30"></p> <p class="a" align="center"><font face="Arial" size="2"><a href="../main/disclaimer.htm">disclaimer</a></font></p> <p class="a" align="center"><span class="verdana10">website:</span> <a target="_top" href="http://www.contingencyanalysis.com"> <font size="2" face="Arial">http://www.contingencyanalysis.com</font></a><br> <span class="verdana10">books direct link:</span> <a target="_top" href="http://www.riskbook.com"><font size="2" face="Arial">http://www.riskbook.com</font></a><br> copyright <font face="Times New Roman">©</font> Contingency Analysis, 1996 - current</p> <p class="a" align="center"><map name="FPMap1_I1"> <area target="_top" href="http://www.contingencyanalysis.com" shape="rect" coords="0, 0, 240, 88"> </map><img border="0" src="../images/logo_book_white.gif" usemap="#FPMap1_I1" width="241" height="89"></p>  </body>