FX Options and Smile Risk

Name: FX Options and Smile Risk
Author: Antonio Castagna

Gebonden Engels 2009 9780470754191

99,26

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Samenvatting

Practical issues in FX options and smile risk

FX Options and Smile Risk takes readers through the main technicalities of the FX spot and options markets, helping them develop practical trading skills that will enable them to run an FX options book in the real world. It describes how to build FX volatility surfaces in robust and consistent ways and how to use them in the pricing of vanilla and exotic options. It enables readers to effectively hedge exposures to volatility surface and other risks related to exotic options. It′s highly focused on the practical aspects of the pricing and hedging of the typical risks of an FX options desk and deals with the momentous issues of building consistent volatility matrices and a unified approach to pricing and hedging.

Antonio Castagna (Milan, Italy) is a Consultant at Iason Ltd, providing pricing and risk management expertise for complex products. He has extensive experience in FX and derivatives, and was previously Head of Volatility Trading at Banca IMI Milan, where he set up the bank′s FX Option desk.

Specificaties

ISBN13:9780470754191

Taal:Engels

Bindwijze:gebonden

Aantal pagina's:320

Uitgever:John Wiley & Sons

Hoofdrubriek:Financieel management, Financieel management

Serie:The Wiley Finance Series

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Inhoudsopgave

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.
1.4 Main traded FX option structures.
2 Pricing Models for FX Options.
2.1 Principles of option pricing theory.
2.2 The black scholes model.
2.3 The Heston Model.
2.4 The SABR model.
2.5 The mixture approach.
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.
3.5 Hedging Vega.
3.6 Hedging Delta, Vega, Vanna and Volga.
3.7 The volatility smile and its phenomenology.
3.8 Local exposures to the volatility smile.
3.9 Scenario hedging and its relationship with Vanna Volga hedging.
4 The Volatility Surface.
4.1 General definitions.
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 Vanna Volga approach.
4.5 Some features of the Vanna Volga approach.
4.6 An alternative characterization of the Vanna 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.
4.10 Building the volatility matrix in practice.
5 Plain Vanilla Options.
5.1 Pricing of plain vanilla options.
5.2 Market–making tools.
5.3 Bid/ask spreads for plain vanilla options.
5.4 Cutoff times and spreads.
5.5 Digital options.
5.6 American plain vanilla options.
6 Barrier Options.
6.1 A taxonomy of barrier options.
6.2 Some relationships of barrier option prices.
6.3 Pricing for barrier options in a BS economy.
6.4 Pricing formulae for barrier options.
6.5 One–touch (rebate) and no–touch options.
6.6 Double–barrier options.
6.7 Double–no–touch and double–touch options.
6.8 Probability of hitting a barrier.
6.9 Greek calculation.
6.10 Pricing barrier options in other model settings.
6.11 Pricing barriers with non–standard delivery.
6.12 Market approach to pricing barrier options.
6.13 Bid/ask spreads.
6.14 Monitoring frequency.
7 Other Exotic Options.
7.1 Introduction.
7.2 At–expiry barrier options.
7.3 Window barrier options.
7.4 First then and knock–in knock–out barrier options.
7.5 Auto–quanto options.
7.6 Forward start options.
7.7 Variance swaps.
7.8 Compound, asian and lookback options.
8 Risk Management Tools and Analysis.
8.1 Introduction.
8.2 Implementation of the LMUV model.
8.3 Risk monitoring tools.
8.4 Risk analysis of plain vanilla options.
8.5 Risk analysis of digital options.
9 Correlation and FX Options.
9.1 Preliminary considerations.
9.2 Correlation in the BS setting.
9.3 Contracts depending on several FX spot rates.
9.4 Dealing with correlation and volatility smile.
9.5 Linking volatility smiles.
References.
Index.