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Volatility Smile (Hardcover) (Emanuel Derman & Michael B. Miller)
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The Volatility Smile is a comprehensive introduction to this important topic in derivatives pricing and options trading, by celebrated author and quant Emanuel Derman. Using mathematics, calculus, differential equations, and stochastic calculus, Derman presents models and methods of solution in the world of derivatives pricing—but thisis not a book about math. This book is designed to help you hone your instincts and intuition about a variety of options models, understanding what you're doing and why you're doing it. Building models is the easy part—this book teaches you how to determine whether or not your model is realistic, and what it actually leads to. You'll dive deep into the volatility smile and how it contradicts the classic Black-Scholes model, and then explore alternative models that account for it. You'll derive simple proofs to key formulas, and develop them logically to estimate the effects, and learn just how limited financial models are. You'll develop a strong foundational understanding of the meaning, mechanics, and methods that go way beyond solutions to provide a more accurate picture of options pricing.
Academics tend to think of options valuations as a solved problem of little interest, but practitioners understand that the problem isn't solved at all. This book deepens your understanding of the tools of your trade, with practical insight for better results.
- Extend the Black-Scholes-Merton model to accommodate the volatility smile
- Gain deep insight into model choice, model validity, and model testing
- Build your own models and understand what the results are telling you
The Volatility Smile provides the clarity and understanding real-world practitioners need to perform more effectively and authoritatively.