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Taleb on Risk: Dynamic Hedging [Hardcover]

Nassim Nicholas Taleb
4.0 out of 5 stars  See all reviews (15 customer reviews)
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Book Description

23 Jan 1997 Wiley Finance (Book 64)
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–Society GARCH  "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

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Product details

  • Hardcover: 528 pages
  • Publisher: John Wiley & Sons; 1 edition (23 Jan 1997)
  • Language: English
  • ISBN-10: 0471152803
  • ISBN-13: 978-0471152804
  • Product Dimensions: 25.9 x 18.5 x 3.1 cm
  • Average Customer Review: 4.0 out of 5 stars  See all reviews (15 customer reviews)
  • Amazon Bestsellers Rank: 210,602 in Books (See Top 100 in Books)
  • See Complete Table of Contents

More About the Author

Nassim Nicholas Taleb has devoted his life to problems of uncertainty, probability, and knowledge. He spent two decades as a trader before becoming a philosophical essayist and academic researcher. Although he now spends most of his time either working in intense seclusion in his study, or as a flâneur meditating in cafés across the planet, he is currently Distinguished Professor of Risk Engineering at New York University's Polytechnic Institute. His main subject matter is "decision making under opacity", that is, a map and a protocol on how we should live in a world we don't understand.

His works are grouped under the general title Incerto (latin for uncertainty), composed of a trilogy accessible in any order (Antifragile, The Black Swan, and Fooled by Randomness) plus two addenda: a book of philosophical aphorisms (The Bed of Procrustes) and a freely available Technical Companion. Taleb's books have been published in thirty-three languages.

Taleb believes that prizes, honorary degrees, awards, and ceremonialism debase knowledge by turning it into a spectator sport.

""Imagine someone with the erudition of Pico de la Mirandola, the skepticism of Montaigne, solid mathematical training, a restless globetrotter, polyglot, enjoyer of fine wines, specialist of financial derivatives, irrepressible reader, and irascible to the point of readily slapping a disciple." La Tribune (Paris)

A giant of Mediterranean thought ... Now the hottest thinker in the world", London Times
"The most prophetic voice of all" GQ

Product Description

Review

"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

"A tour de force. That rare find 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 traders." -- Victor Niederhoffer, Chairman Niederhoffer Investments

"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 beginners and experienced traders." -- Peter Tselepis, Global Risk Manager Currency Options Trading Banque Indosuez

"This is not merely the best book on how options trade, it is the only book." -- Stan Jonas, Managing Director FIMAT-Societe Generale

From the Back Cover

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

Inside This Book (Learn More)
First Sentence
In this chapter, we will rapidly but formally define the instruments and present their major characteristics. Read the first page
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Front Cover | Copyright | Table of Contents | Excerpt | Index | Back Cover
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Customer Reviews

Most Helpful Customer Reviews
13 of 14 people found the following review helpful
5.0 out of 5 stars A book long overdue 23 Mar 1999
By A Customer
Format:Hardcover
It is nearly impossible to write a book that is both mathematically rigorous and sufficiently down to earth to be accessible to the professional trader. This book is a step in the right direction. It maintains the mathematical accuracy and depth without bogging the reader down with technical derivation of formulae. At the same time, it is written by a trader whose experience in the real market compels him to constantly question the 'nice' assumptions used to derive these formulae.
Taleb is first a market practitioner who uses models and pricing formulae to enhance trading and not the other way around. If there is a discrepancy between theory and reality he doesn't blame the markets.
The book is very personal and leaves no doubt what the author's opinion is on VAR, continuous hedging and other sacred cows of modern finance. The debacle in the financial markets in 1998 and the apologetic excuses by famous traders and theoreticians indicates that there is more than a grain of truth in Taleb's skepticism.
The importance of this book is that whether one agrees or disagrees with Taleb, it forces the reader to question his basic assumptions and rethink common truths. The book is unique: it is stylish, philosophical, literary, and if one may say so of a hardcore financial book - it is very entertaining.
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19 of 22 people found the following review helpful
By A Customer
Format:Hardcover
This is without a doubt the best book that has ever been written on professional options trading and I simply cant understand why anyone would give a less than glowing review. If there is anything better out there (and i dont mean a pricing book that leaves the reader to infer his own trading realities from the models and hedge ratios that ensue) then I'd love to see it.
Of course this isnt a mathematically rigourous platform to learn the pricing and hedging of option products, Taleb is entirely clear that it wasnt meant to be. Instead it offers one source for a multitude of much, much more intuitive lessons on trading, probability, and market realties offered in a persistently thought provoking, even entertaining style.
As a junior trader I found this a real bonus step up the learning curve (im sure you could realise all of this knowledge elsewhere, but in one place? - never.) I eagerly await seeing any additional material included in the second edition.
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1 of 1 people found the following review helpful
Format:Hardcover|Verified Purchase
I All I can say is that this is the best Start for anybody wanting to trade Exotic Options At a retail Level, but also wishing to start a career in any global Financial Center. This Book could change your life I.e ' you will Win or you Will Lose' playing this Game.

Good Luck Everybody the Game is On.
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1 of 1 people found the following review helpful
3.0 out of 5 stars This book is ADVANCED 24 April 2011
Format:Hardcover|Verified Purchase
I saw this book recommended by a number of people and I respect the author from previous works however it was way above my level in terms of maths and application. This book would suit professional risk managers and derivatives traders with a firm grasp of the issues and the math behind them. Not really for the arm-chair enthusiast, except maybe to act as an indication of the real complexities of trading options.
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5.0 out of 5 stars MasterPiece 15 Nov 2013
Format:Hardcover|Verified Purchase
Trading Math you need to understand in a single and in my opinion simple-to-understand package. If you want something on Hedging, this is THE BOOK.
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3.0 out of 5 stars A good book. 30 April 2011
Format:Hardcover
This was probably the first book I ever read that covered options in such depth. A good and interesting read, you can learn a fair amount. As Taleb was an FX options practitioner, beware for most examples to be FX related.
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5 of 7 people found the following review helpful
By A Customer
Format:Hardcover
Taleb's book successfully bridges the gap between well-posited but academic accounts of options theory and the practical knowledge and vernacular that are privy to the best traders. It is thoughtful and interesting, scholarly yet intuitive - and written in such picturesque prose that will at once charm and provoke you! The author makes the point well that market reality at times can be grim and much less forgiving - and certainly much richer - than current theoretical modeling make it out to be and shows how the trader can stack the odds in his or her favor. This book is an invaluable source of ideas for anyone who wants to monetize their empirical research on markets.
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18 of 26 people found the following review helpful
By A Customer
Format:Hardcover
Taleb must be congratulated for writing a book that introduces some basic ideas about options trading to novices. On the other hand, there is nothing in it for the experienced options trader, especially one who understands both the mathematics and real-life issues. Readers lacking either mathematics or real life trading experience may be unduly impressed, which perhaps explains the success of the book. In fact, Taleb is often vague where he should be precise and vice versa. Not atypical for a finance book where outrageous claims are sometimes made on behalf of both practioners and academics in a very young discipline.
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