{"product_id":"volatility-isbn-9781119501619","title":"Volatility","description":"\u003cp\u003e\u003cb\u003eGain a deep, intuitive and technical understanding of practical options theory \u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eThe main challenges in successful options trading are conceptual, not mathematical.  \u003ci\u003eVolatility: Practical Options Theory\u003c\/i\u003e provides financial professionals, academics, students and others with an intuitive as well as technical understanding of both the basic and advanced ideas in options theory to a level that facilitates practical options trading.  The approach taken in this book will prove particularly valuable to options traders and other practitioners tasked with making pricing and risk management decisions in an environment where time constraints mean that simplicity and intuition are of greater value than mathematical formalism.\u003c\/p\u003e \u003cp\u003eThe most important areas of options theory, namely implied volatility, delta hedging, time value and the so-called options greeks are explored based on intuitive economic arguments alone before turning to formal models such as the seminal Black-Scholes-Merton model.  The reader will understand how the model free approach and mathematical models are related to each other, their underlying theoretical assumptions and their implications to level that facilitates practical implementation.\u003c\/p\u003e \u003cp\u003eThere are several excellent mathematical descriptions of options theory, but few focus on a translational approach to convert the theory into practice. This book emphasizes the translational aspect, while first building an intuitive, technical understanding that allows market makers, portfolio managers, investment managers, risk managers, and other traders to work more effectively within—and beyond—the bounds of everyday practice.\u003c\/p\u003e \u003cul\u003e \u003cli\u003eGain a deeper understanding of the assumptions underlying options theory\u003c\/li\u003e \u003cli\u003eTranslate theoretical ideas into practice\u003c\/li\u003e \u003cli\u003eDevelop a more accurate intuition for better time-constrained decision making\u003c\/li\u003e \u003c\/ul\u003e \u003cp\u003eThis book allows its readers to gain more than a superficial understanding of the mechanisms at work in options markets. \u003ci\u003eVolatility\u003c\/i\u003e gives its readers the edge by providing a true bedrock foundation upon which practical knowledge becomes stronger.\u003c\/p\u003e \u003cp\u003ePreface xiii\u003c\/p\u003e \u003cp\u003eAcknowledgments xv\u003c\/p\u003e \u003cp\u003eAbout the Author xvii\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 1 Volatility and Options 1\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e1.1 What Is an Option? 1\u003c\/p\u003e \u003cp\u003e1.2 Options Are Bets on Volatility 3\u003c\/p\u003e \u003cp\u003e1.3 Option Premiums and Breakevens 6\u003c\/p\u003e \u003cp\u003e1.3.1 Understanding Option Premiums 6\u003c\/p\u003e \u003cp\u003e1.3.2 Relation Between Premium and Breakeven 7\u003c\/p\u003e \u003cp\u003e1.4 Strike Conventions 9\u003c\/p\u003e \u003cp\u003e1.5 What Is Volatility? 10\u003c\/p\u003e \u003cp\u003e1.5.1 Implied Volatility, σ\u003csub\u003eimplied\u003c\/sub\u003e 11\u003c\/p\u003e \u003cp\u003e1.5.2 Probabilities and Breakevens 15\u003c\/p\u003e \u003cp\u003e1.5.3 Implied Volatility and Realized Volatility 15\u003c\/p\u003e \u003cp\u003e1.5.4 Realized Volatility, \u003csup\u003eσ\u003c\/sup\u003erealized 16\u003c\/p\u003e \u003cp\u003e1.6 Trader's Summary 19\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 2 Understanding Options Without a Model 21\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e2.1 Vanilla Options 21\u003c\/p\u003e \u003cp\u003e2.1.1 Option Payoffs 22\u003c\/p\u003e \u003cp\u003e2.2 Making Assumptions 23\u003c\/p\u003e \u003cp\u003e2.3 Understanding V\u003csub\u003et\u003c\/sub\u003e with Economic Assumptions 24\u003c\/p\u003e \u003cp\u003e2.4 Delta and Delta Hedging 25\u003c\/p\u003e \u003cp\u003e2.5 The Value Function 26\u003c\/p\u003e \u003cp\u003e2.6 Defining Delta 27\u003c\/p\u003e \u003cp\u003e2.7 Understanding Delta 30\u003c\/p\u003e \u003cp\u003e2.8 Delta as the Probability of an In-the-Money Expiry 32\u003c\/p\u003e \u003cp\u003e2.9 Applying Delta as the Probability of an ITM Expiry in Practical Trading 37\u003c\/p\u003e \u003cp\u003e2.10 Constructing V\u003csub\u003et\u003c\/sub\u003e 38\u003c\/p\u003e \u003cp\u003e2.10.1 Jensen's Inequality: V\u003csub\u003et\u003c\/sub\u003e = V(S\u003csub\u003et\u003c\/sub\u003e, t, σ\u003csub\u003ei\u003c\/sub\u003e) ≥ max(S\u003csub\u003et\u003c\/sub\u003e − K, 0) 40\u003c\/p\u003e \u003cp\u003e2.10.2 Trading Intuition Behind Jensen's Inequality 40\u003c\/p\u003e \u003cp\u003e2.10.3 American Options 41\u003c\/p\u003e \u003cp\u003e2.10.4 Gradient of V\u003csub\u003et\u003c\/sub\u003e 42\u003c\/p\u003e \u003cp\u003e2.10.5 Drawing V\u003csub\u003et\u003c\/sub\u003e 42\u003c\/p\u003e \u003cp\u003e2.11 Option Deltas 44\u003c\/p\u003e \u003cp\u003e2.12 A Note on Forwards 45\u003c\/p\u003e \u003cp\u003e2.13 Put–Call Parity 46\u003c\/p\u003e \u003cp\u003e2.14 Trader's Summary 48\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 3 The Basic Greeks: Theta 49\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e3.1 Theta, ;; 50\u003c\/p\u003e \u003cp\u003e3.1.1 Overnight Theta for an ATM Option 51\u003c\/p\u003e \u003cp\u003e3.1.2 Dependence of ;;(S\u003csub\u003et\u003c\/sub\u003e, t, σ\u003csub\u003ei\u003c\/sub\u003e) on S\u003csub\u003e\u003csup\u003et\u003c\/sup\u003e\u003c\/sub\u003e 52\u003c\/p\u003e \u003cp\u003e3.1.3 Dependence of ;;(S\u003csub\u003et\u003c\/sub\u003e, t, σ\u003csub\u003ei\u003c\/sub\u003e) on t 60\u003c\/p\u003e \u003cp\u003e3.2 Trader's Summary 65\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 4 The Basic Greeks: Gamma 67\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e4.1 Gamma, ;; 68\u003c\/p\u003e \u003cp\u003e4.2 Gamma and Time Decay 70\u003c\/p\u003e \u003cp\u003e4.3 Traders' Gamma, ;;\u003csub\u003etrader\u003c\/sub\u003e 70\u003c\/p\u003e \u003cp\u003e4.4 Gamma–Time Decay Trade-offs in More Detail 71\u003c\/p\u003e \u003cp\u003e4.5 PnL Explain 73\u003c\/p\u003e \u003cp\u003e4.5.1 Example: Gamma, Time Decay, and PnL Explain for a 1-Week Option 73\u003c\/p\u003e \u003cp\u003e4.6 Delta Hedging and PnL Variance 76\u003c\/p\u003e \u003cp\u003e4.7 Transaction Costs 78\u003c\/p\u003e \u003cp\u003e4.8 Daily PnL Explain 79\u003c\/p\u003e \u003cp\u003e4.9 The Gamma Profile 81\u003c\/p\u003e \u003cp\u003e4.9.1 Gamma and Spot 81\u003c\/p\u003e \u003cp\u003e4.9.2 Gamma and Implied Volatility 82\u003c\/p\u003e \u003cp\u003e4.9.3 Gamma and Time 83\u003c\/p\u003e \u003cp\u003e4.9.4 Total Gamma 84\u003c\/p\u003e \u003cp\u003e4.10 Trader's Summary 84\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 5 The Basic Greeks: Vega 87\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e5.1 Vega 88\u003c\/p\u003e \u003cp\u003e5.2 Understanding Vega via the PDF 89\u003c\/p\u003e \u003cp\u003e5.3 Understanding Vega via Gamma Trading 89\u003c\/p\u003e \u003cp\u003e5.4 Vega of an ATMS Option Across Tenors 90\u003c\/p\u003e \u003cp\u003e5.5 Vega and Spot 91\u003c\/p\u003e \u003cp\u003e5.6 Dependence of Vega on Implied Volatility 94\u003c\/p\u003e \u003cp\u003e5.7 Vega Profiles Applied in Practical Options Trading 95\u003c\/p\u003e \u003cp\u003e5.8 Vega and PnL Explain 96\u003c\/p\u003e \u003cp\u003e5.9 Trader's Summary 97\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 6 Implied Volatility and Term Structure 99\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e6.1 Implied Volatility, \u003csup\u003eσ\u003c\/sup\u003e\u003ci\u003eimplied\u003c\/i\u003e 100\u003c\/p\u003e \u003cp\u003e6.2 Term Structure 104\u003c\/p\u003e \u003cp\u003e6.3 Flat Vega and Weighted Vega Greeks 104\u003c\/p\u003e \u003cp\u003e6.3.1 Flat Vega 105\u003c\/p\u003e \u003cp\u003e6.3.2 Weighted Vega 106\u003c\/p\u003e \u003cp\u003e6.3.3 Beta-Weighted Vega 108\u003c\/p\u003e \u003cp\u003e6.4 Forward Volatility, Forward Variance, and Term Volatility 108\u003c\/p\u003e \u003cp\u003e6.4.1 Calculating Implied Forward Volatility 110\u003c\/p\u003e \u003cp\u003e6.5 Building a Term Structure Model Using Daily Forward Volatility 111\u003c\/p\u003e \u003cp\u003e6.6 Setting Base Volatility Using a Three-Parameter GARCH Model 114\u003c\/p\u003e \u003cp\u003e6.6.1 Applying the Three-Parameter Model 116\u003c\/p\u003e \u003cp\u003e6.6.2 Limitations of GARCH 117\u003c\/p\u003e \u003cp\u003e6.6.3 Risk Management Using the Three-Parameter Model 118\u003c\/p\u003e \u003cp\u003e6.6.4 Empirical GARCH Estimation 118\u003c\/p\u003e \u003cp\u003e6.7 Volatility Carry and Forward Volatility Agreements 119\u003c\/p\u003e \u003cp\u003e6.7.1 Volatility Carry in the GARCH Model 120\u003c\/p\u003e \u003cp\u003e6.7.2 Common Pitfalls in Volatility Carry Trading 121\u003c\/p\u003e \u003cp\u003e6.8 Trader's Summary 121\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 7 Vanna, Risk Reversal, and Skewness 123\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e7.1 Risk Reversal 125\u003c\/p\u003e \u003cp\u003e7.2 Skewness 127\u003c\/p\u003e \u003cp\u003e7.3 Delta Space 129\u003c\/p\u003e \u003cp\u003e7.4 Smile in Delta Space 130\u003c\/p\u003e \u003cp\u003e7.5 Smile Vega 132\u003c\/p\u003e \u003cp\u003e7.5.1 Smile Vega Notionals 134\u003c\/p\u003e \u003cp\u003e7.6 Smile Delta 135\u003c\/p\u003e \u003cp\u003e7.6.1 Considerations Relating to Smile Delta 136\u003c\/p\u003e \u003cp\u003e7.7 Trader's Summary 137\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 8 Volgamma, Butterfly, and Kurtosis 139\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e8.1 The Butterfly Strategy 140\u003c\/p\u003e \u003cp\u003e8.2 Volgamma and Butterfly 141\u003c\/p\u003e \u003cp\u003e8.3 Kurtosis 142\u003c\/p\u003e \u003cp\u003e8.4 Smile 143\u003c\/p\u003e \u003cp\u003e8.5 Butterflies and Smile Vega 144\u003c\/p\u003e \u003cp\u003e8.6 Trader's Summary 145\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 9 Black-Scholes-Merton Model 147\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e9.1 The Log-normal Diffusion Model 148\u003c\/p\u003e \u003cp\u003e9.2 The BSM Partial Differential Equation (PDE) 148\u003c\/p\u003e \u003cp\u003e9.3 Feynman-Kac 152\u003c\/p\u003e \u003cp\u003e9.4 Risk-Neutral Probabilities 153\u003c\/p\u003e \u003cp\u003e9.5 Probability of Exceeding the Breakeven in the BSM Model 154\u003c\/p\u003e \u003cp\u003e9.6 Trader's Summary 155\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 10 The Black-Scholes Greeks 157\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e10.1 Spot Delta, Dual Delta, and Forward Delta 157\u003c\/p\u003e \u003cp\u003e10.1.1 Spot Delta 157\u003c\/p\u003e \u003cp\u003e10.1.2 The ATM Strike and the Delta-Neutral Straddle 159\u003c\/p\u003e \u003cp\u003e10.1.3 Dual Delta 160\u003c\/p\u003e \u003cp\u003e10.1.4 Forward Delta 161\u003c\/p\u003e \u003cp\u003e10.2 Theta 161\u003c\/p\u003e \u003cp\u003e10.3 Gamma 163\u003c\/p\u003e \u003cp\u003e10.4 Vega 164\u003c\/p\u003e \u003cp\u003e10.5 Vanna 164\u003c\/p\u003e \u003cp\u003e10.6 Volgamma 165\u003c\/p\u003e \u003cp\u003e10.7 Trader's Summary 165\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 11 Predictability and Mean Reversion 167\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e11.1 The Past and the Future 167\u003c\/p\u003e \u003cp\u003e11.2 Empirical Analysis 168\u003c\/p\u003e \u003cp\u003e\u003cb\u003eAPPENDIX A Probability 173\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eA.1 Probability Density Functions (PDFs) 173\u003c\/p\u003e \u003cp\u003eA.1.1 Discrete Random Variables and PMFs 173\u003c\/p\u003e \u003cp\u003eA.1.2 Continuous Random Variables and PDFs 174\u003c\/p\u003e \u003cp\u003eA.1.3 Normal and Log-normal Distributions 176\u003c\/p\u003e \u003cp\u003e\u003cb\u003eAPPENDIX B Calculus 179\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eGlossary 181\u003c\/p\u003e \u003cp\u003eReferences 183\u003c\/p\u003e \u003cp\u003eIndex 185\u003c\/p\u003e  \u003cp\u003e\u003cb\u003eADAM S. IQBAL\u003c\/b\u003e is a Managing Director and Global Head of FX Exotics and Correlation at Goldman Sachs, where he has also served as EMEA Head of G10 FX Options Trading. He has worked as an FX Volatility Portfolio Manager at Pimco, and as an FX options trader at Barclays Investment Bank. He holds a PhD in financial mathematics and financial economics from Imperial College London, an MSc in applied mathematics from Oxford University and an MSci and BA in theoretical physics from Cambridge University.   \u003c\/p\u003e\u003cp\u003e\u003ci\u003eVolatility: Practical Options Theory\u003c\/i\u003e dissects options—the financial contracts that provide exposure to volatility risk—to help readers marry foundational knowledge with practical application. While textbook treatments of the mathematical theory of options are abundant, this book is unique in its emphasis on developing an intuitive understanding of both the basic and advanced ideas in options theory. \u003c\/p\u003e\u003cp\u003eThe discussion examines options theory concepts both with and without mathematical models, and then further develops this approach with insightful guidance on merging the two perspectives to serve practical implementation. This translational approach may prove particularly valuable to options traders and other practitioners tasked with making pricing or risk management decisions in an environment where time constraints mean that simplicity and intuition is of more value than mathematical formalism. \u003c\/p\u003e\u003cul\u003e \u003cli\u003eDevelop a deeper understanding of option greeks, delta hedging, implied volatility, and \t\t\tother major concepts based on intuitive economic arguments before applying a mathe\t\t\tmatical model.\u003c\/li\u003e \u003cli\u003eTranslate theoretical ideas into practice.\u003c\/li\u003e \u003cli\u003eDelve into the Black-Scholes-Merton model and its underlying theoretical assumptions—and their implications—in a way that facilitates real-world implementation.\u003c\/li\u003e \u003cli\u003eRefresh calculus and advanced statistical skills using helpful appendices that\tprovide important formulae and functions.\u003c\/li\u003e \u003c\/ul\u003e \u003cp\u003eAuthor Adam S. Iqbal argues that option trading's main challenges are conceptual rather than mathematical; by tackling these challenges head-on and providing a clear link between theoretical and practical, this book offers traders, portfolio managers, investment managers, risk managers, and other market practitioners an invaluable source of insight designed to facilitate more effective volatility strategy. Comprehensive in scope and depth, \u003ci\u003eVolatility: Practical Options Theory\u003c\/i\u003e provides a much-needed reference for practitioners seeking a more effective grasp of options and volatility.\u003c\/p\u003e","brand":"Wiley","offers":[{"title":"Default Title","offer_id":47990462120165,"sku":"NP9781119501619","price":60.0,"currency_code":"USD","in_stock":false}],"thumbnail_url":"\/\/cdn.shopify.com\/s\/files\/1\/1842\/7735\/files\/9781119501619.jpg?v=1761787923","url":"https:\/\/k12savings.com\/products\/volatility-isbn-9781119501619","provider":"K12savings","version":"1.0","type":"link"}