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Advanced Equity Derivatives: Volatility and Correlation (Wiley Finance)by Sebastien Bossu
Synopses & Reviews
Equity exotic derivatives are staples of sophisticated investment and portfolio management strategies. Knowing the formulas that lead to correct fair value pricing and hedging of these instruments is requisite for trading equity-linked products and enhancing yields. Advanced Equity Derivatives is a resource for traders, analysts, and other finance professionals who want to gain an in-depth understanding of how these advanced instruments work. This book ventures far beyond vanilla products and instruments that were considered exotic thirty years ago, making it a definitive text in the field.
Written for readers with a solid background in basic equity derivatives pricing and advanced mathematics, this book references Black-Scholes and other standard formulas for exotics from the most common to the cutting-edge. With this background, readers can make use of detailed discussions of central concepts in advanced equity derivatives. Implied distributions, volatility derivatives, and correlation trading are among the topics addressed, and each chapter concludes with practice exercises and important derivations. Numerous illustrations allow readers to quickly grasp complicated concepts.
Sébastien Bossu is a highly experienced exotics specialist. In Advanced Equity Derivatives, he presents his own work alongside the work of others in the field in order to prepare readers to accurately price next-generation instruments. In 2004, Bossu discovered a model that corrected errors in the pricing and hedging of correlation swaps, and this model forms the basis for the correlation chapters of this book. Other possibilities, including stochastic correlation models, are also thoroughly explored, giving readers a sufficient understanding to transpose formulas into any context.
This book builds on the concepts and principles explained by Bossu's popular textbook, An Introduction to Equity Derivatives. For investment professionals who need to go beyond the basics to manage risk and understand pricing models, this book is the indispensable next step. The front line of current equity exotics research is repre??sented in the pages of Advanced Equity Derivatives. From standard instruments to brand new practices, this text quickly brings readers up to date on Wall Street standards and the direction of equity exotic derivatives markets.
Praise for Advanced Equity Derivatives
"Written by a leading expert who spearheaded the joint pricing and modeling of equity volatility and correlation swaps, this book covers all the theory, models, and practical issues essential for everyone on the buy- or sell-side involved in the pricing and risk management of options. A superb read and a must-read for graduate students studying the subject."
—Martin Bertsch, Co-Founder of Kledia Consulting and MyFinanceTutor
"A great resource for academics, practitioners, and graduate students. Sébastien Bossu is the definite expert on how to link volatility and correlation together."
—François Brochet, Harvard Business School
"Sébastien Bossu shares his knowledge of sophisticated derivatives concepts, instruments and strategies used by traders, investment managers, and risk managers. Understanding volatility and correlation in depth is crucial to successfully pricing and hedging equity options. This book is a must-have in this highly specialized field."
—Kay Torshen, CEO and Founder, Torshen Capital Management LLC
Accurate pricing strategies for cutting-edge exotic derivatives
For equity derivative traders and quantitative analysts who need to understand the latest models in pricing and hedging advanced equity instruments, this book is the perfect choice. Sébastien Bossu gets down to details immediately, concisely presenting single- and multi-asset exotics before moving into the key concepts that sophisticated traders need to know. Advanced Equity Derivatives addresses everything from ??well-established volatility instruments to the most advanced correlation models.
With Advanced Equity Derivatives, readers gain a highly developed understanding of complex issues related to volatility and correlation, including:
Gain a deeper understanding of Asian financial reporting and how to detect irregularities
Equity derivatives require advanced pricing methods to maximize gains while minimizing risk. Even slightly ineffective modeling and pricing can impact yield potential, and a robust risk management plan is essential. Although equity derivatives perform best in a volatile market, exercising all available options at key points is the critical move of the successful investor. Equity derivatives are the bolder, more complex side of OTC trading, and can be customized to increase gains, but they must be executed with precision. A poorly executed strategy can mean substantial losses, when advanced planning could have yielded substantial gains.
In Advanced Equity Derivatives, author Sebastian Bossu explains the principles that govern exotic equity derivatives, and the factors that play into increasing returns. With a dual background in academia and high finance, Bossu describes the formulas and modeling techniques that can help mitigate risk, regardless of market position. Using a mathematically-based, quantitative approach, the book provides a deeper understanding of the modern equity marketplace, including:
Advanced Equity Derivatives contains illustrations and problem sets that clarify advanced concepts in the pricing and hedging of exotic derivatives, making it ideal for classroom or training use. A portfolio must be diverse to perform to its full potential, and Advanced Equity Derivatives provides the information that empowers the savvy investor.
About the Author
SÉBASTIEN BOSSU is Principal at Ogee Group LLC, an investment management and software development business based in New York. His past experience includes positions as director of Equity Derivatives Structuring for a London bank and exotics structurer at J.P. Morgan. Bossu is currently an adjunct professor at Pace University and also recently taught at Fordham University.
Table of Contents
Chapter 1: Exotic Derivatives
Chapter 2: The Implied Volatility Surface
Chapter 3: Implied Distributions
Chapter 4: Local Volatility and Beyond
Chapter 5: Volatility Derivatives
Chapter 6: Introducing Correlation
Chapter 7: Correlation Trading
Chapter 8: Local Correlation
Chapter 9: Stochastic Correlation
Appendix A: Probability Review
Appendix B: Linear Algebra Review
About the Author
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