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Product Description: Dynamic Hedging is the definitive source on derivatives risk. It provides a real-world methodology for managing portfolios containing any nonlinear security. It presents risks from the vantage point of the option market maker and arbitrage operator. The only book about derivatives risk written by an experienced trader with theoretical training, it remolds option theory to fit the practitioner's environment. As a larger share of market exposure cannot be properly captured by mathematical models, noted option arbitrageur Nassim Taleb uniquely covers both on-model and off-model derivatives risks.
The author discusses, in plain English, vital issues, including:
The generalized option, which encompasses all instruments with convex payoff, including a trader's potential bonus.
The techniques for trading exotic options, including binary, barrier, multiasset, and Asian options, as well as methods to take into account the wrinkles of actual, non-bellshaped distributions.
Market dynamics viewed from the practitioner's vantage point, including liquidity holes, portfolio insurance, squeezes, fat tails, volatility surface, GARCH, curve evolution, static option replication, correlation instability, Pareto-Levy, regime shifts, autocorrelation of price changes, and the severe flaws in the value at risk method.
New tools to detect risks, such as higher moment analysis, topography exposure, and nonparametric techniques.
The path dependence of all options hedged dynamically
Dynamic Hedging is replete with helpful tools, market anecdotes, at-a-glance risk management rules distilling years of market lore, and important definitions. The book contains modules in which the fundamental mathematics of derivatives, such as the Brownian motion, Ito's lemma, the numeraire paradox, the Girsanov change of measure, and the Feynman-Kac solution are presented in intuitive practitioner's language.
Dynamic Hedging is an indispensable and definitive reference for market makers, academics, finance students, risk managers, and regulators.
The definitive book on options trading and risk management
"If pricing is a science and hedging is an art, Taleb is a virtuoso." —Bruno Dupire, Head of Swaps and Options Research, Paribas Capital Markets
"This is not merely the best book on how options trade, it is the only book." —Stan Jonas, Managing Director, FIMAT-Société Générale
"Dynamic Hedging bridges the gap between what the best traders know and what the best scholars can prove." —William Margrabe, President, The William Margrabe Group, Inc.
"The most comprehensive, insightful, intuitive work on the subject. It is instrumental for both beginning and experienced traders."—
"A tour de force. That rare find, a book of great practical and theoretical value. Taleb successfully bridges the gap between the academic and the real world. Interesting, provocative, well written. Each chapter worth a fortune to any current or prospective derivatives trader."—Victor Niederhoffer, Chairman, Niederhoffer Investments
Customer Reviews
Average Rating:
Rating: - Dynamic Hedging
This is a ponderous work that needs close study. Most investing books omit
real information on the subject where as this one presents a massive overdose. I appreciate the author's willingness to reveal what he knows but I think in this case that I'm going to need help on the subject.
Rating: - Outstanding
Taleb once again. Although you may require some knowledge on futures and option trading to understand the bottom of the story, it is nice book, light to read and usefull. If you trade on futures and options you should take a look inside, not becuase of the technical content but to have a close look at the man's ideas.
Rating: - Excellent book, intuitive approach although not to be used for introductory purposes
Before starting as a trader I had studied Hull in college and took some 'advanced' investments classes. On the first day of work I was told to read 'Dynamic Hedging'.
My impression: Hull teaches you the (very) basics and Taleb gives you insight in the concepts that are truly relevant. However, do not expect to read it and get everything he writes. As it is written from a practicioner's point of view, things will probably only become cristal clear when you re-read it after spending a considerable amount of time in the dealing room.
Rating: - Quick Question
This isn't so much a review as an inquiry -
I'm still working through this book, but I've noticed that it is replete with algebraic errors. Taleb doesn't always go through every step of his calculations, so they're difficult to follow.
Does anyone else notice these errors or am I getting caught in the algebra? An example is on page 38 towards the top:
He says that 12,500,000/.985 is 1,269,000. Even with the rounding (shaving off the 355), I'd say he's off by a factor of 10. Shouldn't the answer by 12,690,000? To confirm this, in the next paragraph he writes that a 1 cent rise in the futures price will yield $125,000 in profits on the future (12,500,000*.01) or $126,900 on the forward hedge. Intuitively, it seems that to get $126,900, you could divide $125,000 by .985 or multiply 12,690,000 (the answer you should've previously arrived at) by .01.
There are other errors like this throughout the book - anyone else notice them?
Rating: - Revised edition?
Books-A_Million lists a revised edition, ISBN: 0471353477, with December, 2008, as a publication date. Their advance order price is $76.95.
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