Details

How to Calculate Options Prices and Their Greeks


How to Calculate Options Prices and Their Greeks

Exploring the Black Scholes Model from Delta to Vega
The Wiley Finance Series 1. Aufl.

von: Pierino Ursone

42,99 €

Verlag: Wiley
Format: PDF
Veröffentl.: 10.04.2015
ISBN/EAN: 9781119011644
Sprache: englisch
Anzahl Seiten: 224

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Beschreibungen

<p><b>A unique, in-depth guide to options pricing and valuing their greeks, along with a four dimensional approach towards the impact of changing market circumstances on options</b></p> <p>How to Calculate Options Prices and Their Greeks is the only book of its kind, showing you how to value options and the greeks according to the Black Scholes model but also how to do this without consulting a model. You'll build a solid understanding of options and hedging strategies as you explore the concepts of probability, volatility, and put call parity, then move into more advanced topics in combination with a four-dimensional approach of the change of the P&L of an option portfolio in relation to strike, underlying, volatility, and time to maturity. This informative guide fully explains the distribution of first and second order Greeks along the whole range wherein an option has optionality, and delves into trading strategies, including spreads, straddles, strangles, butterflies, kurtosis, vega-convexity , and more. Charts and tables illustrate how specific positions in a Greek evolve in relation to its parameters, and digital ancillaries allow you to see 3D representations using your own parameters and volumes.</p> <p> The Black and Scholes model is the most widely used option model, appreciated for its simplicity and ability to generate a fair value for options pricing in all kinds of markets. This book shows you the ins and outs of the model, giving you the practical understanding you need for setting up and managing an option strategy.<br /> <br /> </p> <p> •              Understand the Greeks, and how they make or break a strategy</p> <p> •              See how the Greeks change with time, volatility, and underlying</p> <p> •              Explore various trading strategies</p> <p> •              Implement options positions, and more</p> <p> <br /> Representations of option payoffs are too often based on a simple two-dimensional approach consisting of P&L versus underlying at expiry. This is misleading, as the Greeks can make a world of difference over the lifetime of a strategy. How to Calculate Options Prices and Their Greeks is a comprehensive, in-depth guide to a thorough and more effective understanding of options, their Greeks, and (hedging) option strategies.</p>
<p>Preface ix</p> <p><b>Chapter 1 Introduction 1</b></p> <p><b>Chapter 2 The Normal Probability Distribution 7</b></p> <p>Standard deviation in a financial market 8</p> <p>The impact of volatility and time on the standard deviation 8</p> <p><b>Chapter 3 Volatility 11</b></p> <p>The probability distribution of the value of a Future after one year of trading 11</p> <p>Normal distribution versus log-normal distribution 11</p> <p>Calculating the annualised volatility traditionally 15</p> <p>Calculating the annualised volatility without μ 17</p> <p>Calculating the annualised volatility applying the 16% rule 19</p> <p>Variation in trading days 20</p> <p>Approach towards intraday volatility 20</p> <p>Historical versus implied volatility 23</p> <p><b>Chapter 4 Put Call Parity 25</b></p> <p>Synthetically creating a Future long position, the reversal 29</p> <p>Synthetically creating a Future short position, the conversion 30</p> <p>Synthetic options 31</p> <p>Covered call writing 34</p> <p>Short note on interest rates 35</p> <p><b>Chapter 5 Delta Δ 37</b></p> <p>Change of option value through the delta 38</p> <p>Dynamic delta 40</p> <p>Delta at different maturities 41</p> <p>Delta at different volatilities 44</p> <p>20–80 Delta region 46</p> <p>Delta per strike 46</p> <p>Dynamic delta hedging 47</p> <p>The at the money delta 50</p> <p>Delta changes in time 53</p> <p><b>Chapter 6 Pricing 55</b></p> <p>Calculating the at the money straddle using</p> <p>Black and Scholes formula 57</p> <p>Determining the value of an at the money straddle 59</p> <p><b>Chapter 7 Delta II 61</b></p> <p>Determining the boundaries of the delta 61</p> <p>Valuation of the at the money delta 64</p> <p>Delta distribution in relation to the at the money straddle 65</p> <p>Application of the delta approach, determining the delta of a call spread 68</p> <p><b>Chapter 8 Gamma 71</b></p> <p>The aggregate gamma for a portfolio of options 73</p> <p>The delta change of an option 75</p> <p>The gamma is not a constant 76</p> <p>Long term gamma example 77</p> <p>Short term gamma example 77</p> <p>Very short term gamma example 78</p> <p>Determining the boundaries of gamma 79</p> <p>Determining the gamma value of an at the money straddle 80</p> <p>Gamma in relation to time to maturity,</p> <p>volatility and the underlying level 82</p> <p>Practical example 85</p> <p>Hedging the gamma 87</p> <p>Determining the gamma of out of the money options 89</p> <p>Derivatives of the gamma 91</p> <p><b>Chapter 9 Vega 93</b></p> <p>Different maturities will display different volatility regime changes 95</p> <p>Determining the vega value of at the money options 96</p> <p>Vega of at the money options compared to volatility 97</p> <p>Vega of at the money options compared to time to maturity 99</p> <p>Vega of at the money options compared to the underlying level 99</p> <p>Vega on a 3-dimensional scale, vega vs maturity and vega vs volatility 101</p> <p>Determining the boundaries of vega 102</p> <p>Comparing the boundaries of vega with the boundaries of gamma 104</p> <p>Determining vega values of out of the money options 105</p> <p>Derivatives of the vega 108</p> <p>Vomma 108</p> <p><b>Chapter 10 Theta 111</b></p> <p>A practical example 112</p> <p>Theta in relation to volatility 114</p> <p>Theta in relation to time to maturity 115</p> <p>Theta of at the money options in relation to the underlying level 117</p> <p>Determining the boundaries of theta 118</p> <p>The gamma theta relationship α 120</p> <p>Theta on a 3-dimensional scale, theta vs maturity and theta vs volatility 125</p> <p>Determining the theta value of an at the money straddle 126</p> <p>Determining theta values of out of the money options 127</p> <p><b>Chapter 11 Skew 129</b></p> <p>Volatility smiles with different times to maturity 131</p> <p>Sticky at the money volatility 133</p> <p><b>Chapter 12 Spreads 135</b></p> <p>Call spread (horizontal) 135</p> <p>Put spread (horizontal) 137</p> <p>Boxes 138</p> <p>Applying boxes in the real market 139</p> <p>The Greeks for horizontal spreads 140</p> <p>Time spread 146</p> <p>Approximation of the value of at the money spreads 148</p> <p>Ratio spread 149</p> <p><b>Chapter 13 Butterfly 155</b></p> <p>Put call parity 158</p> <p>Distribution of the butterfly 159</p> <p>Boundaries of the butterfly 161</p> <p>Method for estimating at the money butterfly values 163</p> <p>Estimating out of the money butterfly values 164</p> <p>Butterfly in relation to volatility 165</p> <p>Butterfly in relation to time to maturity 166</p> <p>Butterfly as a strategic play 166</p> <p>The Greeks of a butterfly 167</p> <p>Straddle–strangle or the “Iron fly” 171</p> <p><b>Chapter 14 Strategies 173</b></p> <p>Call 173</p> <p>Put 174</p> <p>Call spread 175</p> <p>Ratio spread 176</p> <p>Straddle 177</p> <p>Strangle 178</p> <p>Collar (risk reversal, fence) 178</p> <p>Gamma portfolio 179</p> <p>Gamma hedging strategies based on Monte Carlo scenarios 180</p> <p>Setting up a gamma position on the back of prevailing kurtosis in the market 190</p> <p>Excess kurtosis 191</p> <p>Benefitting from a platykurtic environment 192</p> <p>The mesokurtic market 193</p> <p>The leptokurtic market 193</p> <p>Transition from a platykurtic environment towards a leptokurtic environment 194</p> <p>Wrong hedging strategy: Killergamma 195</p> <p>Vega convexity/Vomma 196</p> <p>Vega convexity in relation to time/Veta 202</p> <p>Index 205</p>
<p><b>PIERINO URSONE</b> has extensive option trading experience. He began his career as a Market Maker with Optiver, an international market maker that trades on all of the world’s major financial markets. Afterwards, Ursone ran his own option trading company on the Dutch options exchange in Amsterdam, and after nine years in equity options, he entered the Energy commodity market, trading options on a proprietary basis.
<p><i>How to Calculate Options Prices and Their Greeks</i> gives options traders, risk managers, fund managers, and private investors an in-depth guide for valuing and understanding options and “the Greeks”. This important resource explains the ins and outs of the commonly used Black and Scholes model that is appreciated for its simplicity and ability to generate a fair value for options pricing in all kinds of markets as well as how to calculate/approximate values for options and the Greeks without applying a model. The author outlines a practical approach for using the strengths of the Black and Scholes model to understand, set up, and effectively manage an option position. <p>The author explains, step by step the most effective options and hedging strategies. While other resources rely on an ineffective two dimensional approach to investing in options, Ursone takes a practical, four-dimensional approach that puts the emphasis on the distribution of the Greeks. Greeks measure the sensitivity of the value of an option with regards to changes in parameters like the strike, underlying (Future), volatility (measure of the variation of the underlying), time to expiry or maturity and the interest rate. Any change in one of the parameters will directly result in a change in the Greeks and will have an impact on the P&L of an options portfolio. The author therefore accentuates an understanding of the Greeks as a prerequisite for trading and managing an options portfolio. <p>This informative guide explains the distribution of first and second order Greeks along the whole range wherein an option has optionality, and delves into trading strategies, including spreads, straddles, strangles, butterflies, kurtosis, vega-convexity, and more. The book’s illustrative charts and tables clearly show how specific positions in a Greek evolve in relation to its parameters. <p><i>How to Calculate Options Prices and Their Greeks</i> offers traders at all levels effective strategies that eschew the simplistic two dimensional approach of P&L versus underlying and shows how the Greeks can make a world of difference over the lifetime of an options portfolio. <i>How to Calculate Options Prices and Their Greeks</i> is a comprehensive guide to a thorough and more effective understanding of options, their Greeks, and managing option strategies.

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