FX options and smile risk /

The FX options market represents one of the most liquid and strongly competitive markets in the world, and features many technical subtleties that can seriously harm the uninformed and unaware trader. This book is a unique guide to running an FX options book from the market maker perspective. Striki...

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Detalles Bibliográficos
Clasificación:Libro Electrónico
Autor principal: Castagna, Antonio
Formato: Electrónico eBook
Idioma:Inglés
Publicado: Chichester, U.K. ; [Hoboken, N.J.] : J. Wiley & Sons, 2010.
Colección:The Wiley finance series.
Temas:
Foreign exchange options.
Risk management.
Risk Management
Option de change.
Gestion du risque.
risk management.
BUSINESS & ECONOMICS > Finance.
Foreign exchange options
Risk management
Electronic resource.
Acceso en línea:Texto completo (Requiere registro previo con correo institucional)
Tabla de Contenidos:
  • Cover13;
  • Contents
  • Preface
  • Notation and Acronyms
  • 1 The FX Market
  • 1.1 FX rates and spot contracts
  • 1.2 Outright and FX swap contracts
  • 1.3 FX option contracts
  • 1.3.1 Exercise
  • 1.3.2 Expiry date and settlement date
  • 1.3.3 Premium
  • 1.3.4 Market standard practices for quoting options
  • 1.4 Main traded FX option structures
  • 2 Pricing Models for FX Options
  • 2.1 Principles of option pricing theory
  • 2.1.1 The Black8211;Scholes economy
  • 2.1.2 Stochastic volatility economy
  • 2.1.3 Change of numeraire
  • 2.2 The black-scholes model
  • 2.2.1 The forward price to use in the formula
  • 2.2.2 BS greeks
  • 2.2.3 Retrieving implied volatility and strike
  • 2.2.4 Some relationships of the BS formula
  • 2.3 The Heston Model
  • 2.3.1 Time-dependent parameters in the Heston model
  • 2.4 The SABR model
  • 2.5 The mixture approach
  • 2.5.1 The LMLV model
  • 2.5.2 The LMUV model
  • 2.5.3 Features of the LMLV and LMUV models and a comparison between them
  • 2.5.4 Extension of the LMUV model
  • 2.6 Some considerations about the choice of model
  • 3 Dynamic Hedging and Volatility Trading
  • 3.1 Preliminary considerations
  • 3.2 A general framework
  • 3.3 Hedging with a constant implied volatility
  • 3.4 Hedging with an updating implied volatility
  • 3.4.1 A market model for the implied volatility
  • 3.5 Hedging Vega
  • 3.6 Hedging Delta, Vega, Vanna and Volga
  • 3.6.1 Vanna8211;Volga hedging with one implied volatility
  • 3.6.2 Vanna8211;Volga hedging with different implied volatilities
  • 3.7 The volatility smile and its phenomenology
  • 3.8 Local exposures to the volatility smile
  • 3.8.1 Retrieving the strikes of the main structures
  • 3.8.2 ATM straddle exposures
  • 3.8.3 Risk reversal exposures
  • 3.8.4 Vega-weighted butterfly exposures
  • Scenario hedging and its relationship with Vanna8212;Volga hedging
  • 3.9.1 Scenario hedging with constant Delta options
  • 4 The Volatility Surface
  • 4.1 General definitions
  • 4.1.1 Arbitrage opportunities under the three different rules
  • 4.2 Criteria for an efficient and convenient representation of the volatility surface
  • 4.3 Commonly adopted approaches to building a volatility surface
  • 4.4 Smile interpolation among strikes: the Vanna8211;Volga approach
  • 4.4.1 The Vanna8211;Volga approach: general setting
  • 4.4.2 Computing the Vanna8211;Volga weights and option prices
  • 4.4.3 Limit and no-arbitrage conditions
  • 4.4.4 Approximating implied volatilities
  • 4.5 Some features of the Vanna8211;Volga approach
  • 4.5.1 Hedging error for longer expiries
  • 4.5.2 The implied risk-neutral density and smile asymptotics
  • 4.5.3 Two consistency results
  • 4.6 An alternative characterization of the Vanna8211;Volga approach
  • 4.7 Smile interpolation among expiries: implied volatility term structure
  • 4.8 Admissible volatility surfaces
  • 4.9 Taking into account the market butterfly.

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