Taleb on Risk: Dynamic Hedging Hardcover – 31 Dec 1996
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"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 InvestmentsSee all Product description
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Top customer reviews
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.
This a book for professional who want to understand in deep how professional trades manage their risk by hedging.
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.
Good Luck Everybody the Game is On.
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