Volatility: Practical Options Theory dissects options—the financial contracts that provide exposure to volatility risk—to help readers marry foundational knowledge with practical application. While textbook treatments of the mathematical theory of options are abundant, this book is unique in its emphasis on developing an intuitive understanding of both the basic and advanced ideas in options theory.
The discussion examines options theory concepts both with and without mathematical models, and then further develops this approach with insightful guidance on merging the two perspectives to serve practical implementation. This translational approach may prove particularly valuable to options traders and other practitioners tasked with making pricing or risk management decisions in an environment where time constraints mean that simplicity and intuition is of more value than mathematical formalism.
- Develop a deeper understanding of option greeks, delta hedging, implied volatility, and other major concepts based on intuitive economic arguments before applying a mathematical model.
- Translate theoretical ideas into practice.
- Delve into the Black-Scholes-Merton model and its underlying theoretical assumptions—and their implications—in a way that facilitates real-world implementation.
- Refresh calculus and advanced statistical skills using helpful appendices that provide important formulae and functions.
Author Adam S. Iqbal argues that option trading's main challenges are conceptual rather than mathematical; by tackling these challenges head-on and providing a clear link between theoretical and practical, this book offers traders, portfolio managers, investment managers, risk managers, and other market practitioners an invaluable source of insight designed to facilitate more effective volatility strategy. Comprehensive in scope and depth, Volatility: Practical Options Theory provides a much-needed reference for practitioners seeking a more effective grasp of options and volatility.
"Adam's presentation of this book - with emphasis on intuition and practical rules of thumb - makes it extremely useful not only as a compulsory read for aspiring derivatives traders but also as a handbook for seasoned practitioners of the trade. As many who have been on the job know, it is often quick intuitive judgment that is the only recourse to a trader in a highly volatile moving market, and this book does an excellent job of training one's mind for it."
—Manikandan Natarajan, Partner, Managing Director and Global Head of FX Options at Goldman Sachs (Retired)
"How much can you say about financial options before you even specify a model? This outstanding book by a leading industry expert reveals the rich nature of these securities, blending theory and practical insights in a remarkable fashion. Anyone seeking to understand options should read this book."
—Professor William Perraudin, Director, Risk Control Limited
THE CRITICAL LINK BETWEEN OPTIONS THEORY AND REAL-WORLD PRACTICE
Volatility: Practical Options Theory is an essential resource for those tasked with making pricing or risk management decisions in time-constrained environments. When simplicity and intuition are more valuable than mathematical formalism, practitioners must have a deep, reflexive grasp of both theoretical concepts and technical mechanisms. This level of knowledge goes much deeper than a textbook and is the product of true understanding brought about by real exploration of fundamental principles.
The ideas in this book apply to equity, bond, commodity, and other options. However, this book focuses on the FX options OTC market which, given the high liquidity and low constraints, provides a good "training ground" for implementation of ideas being discussed.