This reference is a treasure trove of derivatives
pricing formulas. Coverage is expansive with analytic and numerical solutions
detailed for vanillas, ratchets, choosers, extendible options, rainbows,
lookbacks, barriers, Asians, interest rate options, etc. The important interest
rate models are also described up to BDT.
The book does not attempt to cover state-of-the-art
financial engineering. It focuses on the "classic" pricing formulas published
during the 1970's, 1980's and early 1990's. For the most part, these don't
handle volatility term structures or stochastic volatility, etc.
Formulas are carefully detailed, and many are
accompanied with computer algorithms. References are cited for most formulas,
and many numerical examples are provided. This is a general book, encompassing
equity, fixed income, foreign exchange and commodity options.
Contents
1. Plain Vanilla Options
2. Exotic Options
3. Numerical Methods in Options
Pricing
4. Interest-Rate Options
5. Volatility and Correlation
6. Some Useful formulas
7. Distributions
8. Partial Derivatives of the
Black-Scholes
9. The Option-Pricing Software
In addition to the main body of the text, an
introductory chapter covers the basics of options. Another chapter details the
practicalities of working with, inferring and interpolating volatilities and
correlations. A final chapter provides useful formulas for interpolation,
discounting and more. The book comes with a computer disk with code for most of
the pricing formulas and ready-to-use spreadsheets. It has broad appeal for
end-users of derivatives, students, researchers, financial risk managers and
financial engineers.
[Review based on the first edition.]
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