9780470688038

Exotic Options and Hybrids : A Guide to Structuring, Pricing and Trading

by ;
  • ISBN13:

    9780470688038

  • ISBN10:

    0470688033

  • Edition: 1st
  • Format: Hardcover
  • Copyright: 5/17/2010
  • Publisher: Wiley
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Summary

Toxic waste . . . it is a sad day when derivatives are described as toxic waste. Are these financial products really so, particularly those of exotic nature, or is it in fact people's grasp and usage of them that is the source of toxicity? While the use of derivatives increased in recent years at astounding rates, the crash of 2008 has revealed that people's understanding of them has not rivalled their spread.Exotic Options and Hybrids is the first book to guide practitioners on how to structure, price and trade modern exotic and hybrid derivatives, without complicating matters with the use of maths. Starting from the unique practical setting of being in a derivatives operation, the book focuses on the three main parts of a derivative's life: the structuring of a product, its pricing and its hedging. He book will take readers through all the applications, strengths and limitations of various models, focussing on the products and their risks rather than the model implementations. Readers can thus understand how models work when applied to pricing and hedging. The book covers a multitude of structures and encompasses many of the most up-to-date and promising products, including hybrid derivatives and dynamic strategies. Each structure is analysed with a utility based approach to its structuring, and an insightful risk based approach to its pricing and hedging. As well as providing comprehensive coverage of exotic options, this book will also dedicate a number of chapters to hybrid derivatives, looking at their nature and at the construction of hybrid products.By discussing exotic options and hybrids in a practical, non-mathematical and highly intuitive setting, this book will blast the misunderstandings and the stigma, and stand strong as the only book in its class to make these "exotic" concepts truly accessible.

Author Biography

Mohamed Bouzoubaa is an experienced practitioner in the world of derivatives, and is currently Head of Derivatives Trading and Structuring at CDG Capital. His professional expertise spans the spectrum of topics in exotic options and hybrids having held positions in Equity Derivatives Sales at Societe Generale in Paris, as a Risk and Fund Management expert at Sophis specializing in the risks involved in equity, credit and fixed income derivatives, and as a derivatives structurer at Bear Stearns/JP Morgan Chase in London and Equity Structured Products Manager at First Gulf Bank in Dubai. Mohamed holds masters degrees in Financial Engineering and in Applied Mathematics.
Adel Osseiran is a mathematician by training. His work as a financial practitioner in derivative pricing includes working in front office roles as a quantitative analyst and as a derivatives structurer in London. He studied Mathematics at the University of Oxford and to PhD level in Financial Mathematics at Imperial College London.

Table of Contents

List of Symbols and Abbreviations
Preface
Foundations
Basic Instruments
Introduction
Interest Rates
Equities and Currencies
Swaps
The World of Structured Products
The Products
The Sell Side
The Buy Side
The Market
Example of an Equity Linked Note
Vanilla Options
General Features of Options
Call and Put Option Payoffs
Put-call Parity and Synthetic Options
Black-Scholes Model Assumptions
Pricing a European Call Option
Pricing a European Put Option
The Cost of Hedging
American Options
Asian Options
An Example of the Structuring Process
Volatility, Skew and Term Structure
Volatility
The Volatility Surface
Volatility Models
Option Sensitivities: Greeks
Delta
Gamma
Vega
Theta
Rho
Relationships between the Greeks
Volga and Vanna
Multi-asset Sensitivities
Approximations to Black-Scholes and Greeks
Strategies Involving Options
Traditional Hedging Strategies
Vertical Spreads
Other Spreads
Option Combinations
Arbitrage Freedom of the Implied Volatility Surface
Correlation
Multi-asset Options
Correlation: Measurements and Interpretation
Basket Options
Quantity Adjusting Options: "Quantos"
Trading Correlation
Exotic Derivatives and Structured Products
Dispersion
Measures of Dispersion and Interpretations
Worst-of Options
Best-of options
Dispersion Options
Rainbow Options
Individually Capped Basket Call (ICBC)
Outperformance Options
Volatility Models
Barrier Options
Barrier Option Payoffs
Black-Scholes Valuation
Hedging Down-and-in Puts
Barriers in Structured Products
Digitals
European Digitals
American Digitals
Risk Analysis
Structured Products Involving European Digitals
Structured Products Involving American Digitals
Outperformance Digital
Autocallable Structures
Single Asset Autocallables
Autocallable Participating Note
Autocallables with Down-and-in Puts
Multi-asset Autocallables
More on Exotic Structures
The Cliquet Family
Forward Starting Options
Cliquets with Local Floors and Caps
Reverse Cliquets
More Cliquets and Related Structures
Other Cliquets
Multi-asset Cliquets
Napoleons
Lookback Options
Mountain Range Options
Altiplano
Himalaya
Everest
Kilimanjaro Select
Atlas
Pricing Mountain Range Products
Volatility Derivatives
The Need for Volatility Derivatives
Traditional Methods for Trading Volatility
Variance Swaps
Variations on Variance Swaps
Options on Realized Variance
The VIX: Volatility Indices
Variance Dispersion
Hybrid Derivatives and Dynamic Strategies
Asset Classes (I)
Interest Rates
Commodities
Asset Classes (II)
Foreign Exchange
Inflation
Credit
Structuring Hybrid Derivatives
Diversification
Yield Enhancement
Multi-asset Class Views
Multi-asset Class Risk Hedging
Pricing Hybrid Derivatives
Additional Asset Class Models
Copulas
Dynamic Strategies and Thematic Indices
Portfolio Management Concepts
Dynamic Strategies
Thematic Products
Appendices
Models
Black-Scholes
Local Volatility Models
Stochastic Volatility
Jump Models
Hull-White Interest Rate Model and Extensions
Approximations
Approximations for Vanilla Prices and Greeks
Basket Price Approximation
ICBC/CBC Inequality
Digitals: Vega and the Position of the Forward
Postscript
Bibliography
Index
Table of Contents provided by Publisher. All Rights Reserved.

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