Advanced Equity Derivatives: Volatility and Correlation

Accurate pricing strategies for cutting–edge exotic derivatives For equity derivative traders and quantitative analysts who need to understand the latest models in pricing and hedging advanced equity instruments, this book is the perfect choice. Sbastien Bossu gets down to details immediately, concisely presenting single– and multi–asset exotics before moving into the key concepts that sophisticated traders need to know. Advanced Equity Derivatives addresses everything from well–established volatility instruments to the most advanced correlation models. This book introduces the work of specialists in addition to the authors own original research, securing its place at the forefront of the advanced derivatives field. With Advanced Equity Derivatives , readers gain a highly developed understanding of complex issues related to volatility and correlation, including: Implied volatility surface models and their consequence for the pricing of exotics Pricing European payoffs using implied distributions Local and stochastic volatility models Variance swaps and other volatility derivatives Extending Black–Scholes and local volatility models to include correlation assets Dispersion trading and correlation swaps Local correlation models and their drawbacks Stochastic correlation models and matrices Illustrations, practice problems, and clear derivations speed up the process of acquiring these concepts. Readers will benefit from the authors experience as a leader in exotics research and current professor of finance. Equipped with the intricate pricing models described in Advanced Equity Derivatives , buy–side and sell–side traders, analysts, and risk managers can access the equity exotics marketplace with total confidence.

Preface Acknowledgments Chapter 1: Exotic Derivatives Chapter 2: The Implied Volatility Surface Chapter 3: Implied Distributions Chapter 4: Local Volatility and Beyond Chapter 5: Volatility Derivatives Chapter 6: Introducing Correlation Chapter 7: Correlation Trading Chapter 8: Local Correlation Chapter 9: Stochastic Correlation Appendix A: Probability Review Appendix B: Linear Algebra Review Solutions Manual Author’s Note About the Author Index

SBASTIEN BOSSU is Principal at Ogee Group LLC, an investment management and software development business based in New York. His past experience includes positions as director of Equity Derivatives Structuring for a London bank and exotics structurer at J.P. Morgan. Bossu is currently an adjunct professor at Pace University and also recently taught at Fordham University.