How to Calculate Options Prices and Their Greeks
Exploring the Black Scholes Model from Delta to Vega
Gebonden Engels 2015 9781119011620Samenvatting
A unique, in–depth guide to options pricing and valuing their greeks, along with a four dimensional approach towards the impact of changing market circumstances on options
How to Calculate Options Prices and Their Greeks is the only book of its kind, showing you how to value options and the greeks according to the Black Scholes model but also how to do this without consulting a model. You′ll build a solid understanding of options and hedging strategies as you explore the concepts of probability, volatility, and put call parity, then move into more advanced topics in combination with a four–dimensional approach of the change of the P&L of an option portfolio in relation to strike, underlying, volatility, and time to maturity. This informative guide fully explains the distribution of first and second order Greeks along the whole range wherein an option has optionality, and delves into trading strategies, including spreads, straddles, strangles, butterflies, kurtosis, vega–convexity , and more. Charts and tables illustrate how specific positions in a Greek evolve in relation to its parameters, and digital ancillaries allow you to see 3D representations using your own parameters and volumes.
The Black and Scholes model is the most widely used option model, appreciated for its simplicity and ability to generate a fair value for options pricing in all kinds of markets. This book shows you the ins and outs of the model, giving you the practical understanding you need for setting up and managing an option strategy.
Understand the Greeks, and how they make or break a strategy
See how the Greeks change with time, volatility, and underlying
Explore various trading strategies
Implement options positions, and more
Representations of option payoffs are too often based on a simple two–dimensional approach consisting of P&L versus underlying at expiry. This is misleading, as the Greeks can make a world of difference over the lifetime of a strategy. How to Calculate Options Prices and Their Greeks is a comprehensive, in–depth guide to a thorough and more effective understanding of options, their Greeks, and (hedging) option strategies.
Specificaties
Lezersrecensies
Inhoudsopgave
Chapter 1 Introduction 1
Chapter 2 The Normal Probability Distribution 7
Standard deviation in a financial market 8
The impact of volatility and time on the standard deviation 8
Chapter 3 Volatility 11
The probability distribution of the value of a Future after one year of trading 11
Normal distribution versus log–normal distribution 11
Calculating the annualised volatility traditionally 15
Calculating the annualised volatility without 17
Calculating the annualised volatility applying the 16% rule 19
Variation in trading days 20
Approach towards intraday volatility 20
Historical versus implied volatility 23
Chapter 4 Put Call Parity 25
Synthetically creating a Future long position, the reversal 29
Synthetically creating a Future short position, the conversion 30
Synthetic options 31
Covered call writing 34
Short note on interest rates 35
Chapter 5 Delta 37
Change of option value through the delta 38
Dynamic delta 40
Delta at different maturities 41
Delta at different volatilities 44
20 80 Delta region 46
Delta per strike 46
Dynamic delta hedging 47
The at the money delta 50
Delta changes in time 53
Chapter 6 Pricing 55
Calculating the at the money straddle using
Black and Scholes formula 57
Determining the value of an at the money straddle 59
Chapter 7 Delta II 61
Determining the boundaries of the delta 61
Valuation of the at the money delta 64
Delta distribution in relation to the at the money straddle 65
Application of the delta approach, determining the delta of a call spread 68
Chapter 8 Gamma 71
The aggregate gamma for a portfolio of options 73
The delta change of an option 75
The gamma is not a constant 76
Long term gamma example 77
Short term gamma example 77
Very short term gamma example 78
Determining the boundaries of gamma 79
Determining the gamma value of an at the money straddle 80
Gamma in relation to time to maturity,
volatility and the underlying level 82
Practical example 85
Hedging the gamma 87
Determining the gamma of out of the money options 89
Derivatives of the gamma 91
Different maturities will display different volatility regime changes 95
Determining the vega value of at the money options 96
Vega of at the money options compared to volatility 97
Vega of at the money options compared to time to maturity 99
Vega of at the money options compared to the underlying level 99
Vega on a 3–dimensional scale, vega vs maturity and vega vs volatility 101
Determining the boundaries of vega 102
Comparing the boundaries of vega with the boundaries of gamma 104
Determining vega values of out of the money options 105
Derivatives of the vega 108
Vomma 108
Chapter 10 Theta 111
A practical example 112
Theta in relation to volatility 114
Theta in relation to time to maturity 115
Theta of at the money options in relation to the underlying level 117
Determining the boundaries of theta 118
The gamma theta relationship 120
Theta on a 3–dimensional scale, theta vs maturity and theta vs volatility 125
Determining the theta value of an at the money straddle 126
Determining theta values of out of the money options 127
Chapter 11 Skew 129
Volatility smiles with different times to maturity 131
Sticky at the money volatility 133
Chapter 12 Spreads 135
Call spread (horizontal) 135
Put spread (horizontal) 137
Boxes 138
Applying boxes in the real market 139
The Greeks for horizontal spreads 140
Time spread 146
Approximation of the value of at the money spreads 148
Ratio spread 149
Chapter 13 Butterfly 155
Put call parity 158
Distribution of the butterfly 159
Boundaries of the butterfly 161
Method for estimating at the money butterfly values 163
Estimating out of the money butterfly values 164
Butterfly in relation to volatility 165
Butterfly in relation to time to maturity 166
Butterfly as a strategic play 166
The Greeks of a butterfly 167
Straddle strangle or the Iron fly 171
Chapter 14 Strategies 173
Call 173
Put 174
Call spread 175
Ratio spread 176
Straddle 177
Strangle 178
Collar (risk reversal, fence) 178
Gamma portfolio 179
Gamma hedging strategies based on Monte Carlo scenarios 180
Setting up a gamma position on the back of prevailing kurtosis in the market 190
Excess kurtosis 191
Benefitting from a platykurtic environment 192
The mesokurtic market 193
The leptokurtic market 193
Transition from a platykurtic environment towards a leptokurtic environment 194
Wrong hedging strategy: Killergamma 195
Vega convexity/Vomma 196
Vega convexity in relation to time/Veta 202
Index 205
Anderen kochten ook
Aswath Damodaran€ 128,55
Will Larson€ 47,61
McKinsey Company Inc.€ 107,05
Bob van Duuren€ 34,99
Saskia Kerkhof€ 32,50
Aswath Damodaran€ 33,95
Rubrieken
- advisering
- algemeen management
- coaching en trainen
- communicatie en media
- economie
- financieel management
- inkoop en logistiek
- internet en social media
- it-management / ict
- juridisch
- leiderschap
- marketing
- mens en maatschappij
- non-profit
- ondernemen
- organisatiekunde
- personal finance
- personeelsmanagement
- persoonlijke effectiviteit
- projectmanagement
- psychologie
- reclame en verkoop
- strategisch management
- verandermanagement
- werk en loopbaan