Introduction Dynamic Hedging 1 Part 1 Markets, Instruments, People 1 Introduction to the Instruments 9 2 The Generalized Option 38 3 Market Making and Market Using 48 4. Liquidity and Liquidity Holes 68 5 Arbitrage and the Arbitrageurs 80 6 Volatility and Correlation 88 Part II Measuring Option Risks 7 Adapting Black-Scholes-Merton: The Delta 115 8 Gamma and Shadow Gamma 132 9 Vega and the Volatility Surface 147 10 Theta and Minor Greeks 167 11 The Greeks and Their Behavior 191 12 Fungibility, Convergence, and Stacking 208 13 Some Wrinkles of Option Markets 222 14 Bucketing and Topography 229 15 Beware the Distribution 238 16 Option Trading Concepts 256 Part III Trading and Hedging Exotic Options 17 Binary Options: European Style 273 18 Binary Options: American Style 295 19 Barrier Options (I) 312 20 Barrier Options (II) 347 21 Compound, Choosers, and Higher Order Options 376 22 Multiasset Options 383 23 Minor Exotics: Lookback and Asian Options 403 Part IV Modules Module A Brownian Motion on a Spreadsheet, a Tutorial 415 Module B Risk Neutrality Explained 426 Module C Numeraire Relativity and the Two-Country Paradox 431 Module D Correlation Triangles: A Graphical Case Study 438 Module E The Value-at-Risk 445 Module F Probabilistic Rankings in Arbitrage 453 Module G Option Pricing 459 Notes 479 Bibliography 490 Index 499
Nassim Nicholas Taleb is the founder of Empirica Capital LLC, a hedge fund operator, and a fellow at the Courant Institute of Mathematical Sciences of New York University. He has held a variety of senior derivative trading positions in New York and London and worked as an independent floor trader in Chicago. Dr. Taleb was inducted in February 2001 in the Derivatives Strategy Hall of Fame. He received an MBA from the Wharton School and a Ph.D. from University Paris-Dauphine.