An Option Greeks Primer [electronic resource] : Building Intuition with Delta Hedging and Monte Carlo Simulation using Excel /
Farid, Jawwad.author.
This book provides a hands-on, practical guide to understanding derivatives pricing. Aimed at the less quantitative practitioner, it provides a balanced account of options, Greeks and hedging techniques avoiding the complicated mathematics inherent to many texts, and with a focus on modelling, market practice and intuition.
Description based upon print version of record.
Cover; Title; Copyright; Dedication; Contents; List of Figures; Preface; Acknowledgements; About the Author; Glossary; Part I Refresher; Introduction: Context; 1 Options; 2 Option price drivers; 3 Greeks; 4 Hedging and squaring; 5 Empirical and implied volatility; 6 In and out of money options; 7 Deep out of money options and lottery tickets; 8 Monte Carlo simulations in Excel; 9 Model and methodology basics; 10 The Black-Scholes-Merton pricing model; 11 N'(d 1 ) and N'(d 2 ); 12 Understanding Black-Scholes: an intuitive derivation of N(d 1 ) and N(d 2 ); i Underlying assumptions
ii Estimating the price moveiii Plugging in the values; iv Receipt of stock and N(d 1 ); v Difference between N(d 1 ) and N(d 2 ); 1 Delta and Gamma; 1 The five Greeks; 2 Introducing Delta; i Let's talk about Delta; ii Using Delta: creating the replicating portfolio; iii Dissecting Delta; 3 Introducing Gamma; i Against strike; ii Against time; iii Against volatility; Appendix 1 - Calculation Examples for At or Near Money Options; Appendix 2 - Using Greeks; Part II Delta Hedging; 2 A Simulation Model for Delta Hedging - European Call Options; 1 Setting the groundwork; 2 Assumptions
3 Simulating the stock price4 Calculating Delta; 5 Calculating total borrowing; 6 Putting it all together; 7 Next steps, and questions; 3 Delta Hedging European Put Options; 1 Tweaking the original Monte Carlo simulation model; 2 Assumptions; 3 Simulating the underlying; 4 Calculating the amount lent; 5 Putting the rest of the sheet together; 4 Calculating Cash P&L for a Call Option; 1 Dissecting the P&L model; i Interest paid and principal borrowed for the hedge; ii Calculating the trading loss on account of selling low; iii Putting it all together
2 The vexing question of trading gain (loss)3 Next steps, and questions; 5 Calculating Cash P&L for a Put Option; 1 Dissecting the P&L model; i Interest paid and principal borrowed for the hedge; ii Calculating the trading gain/loss; iii Putting it all together; Part III Building Surfaces in Excel; 6 Understanding Volatility; 1 The many flavours of volatility; 2 Enter volatility surface; 3 The difference between implied and local volatilities; i Implied volatilities; ii Local volatilities; 7 Building Volatility Surfaces; 1 Creating the implied volatility dataset
2 Building local volatility surfaces in Excel3 Next steps, and questions; 8 Forward Implied Volatilities; 1 Comparing local, implied and forward volatilities; Part IV Hedging Higher-Order Greeks; 9 Vega, Volga and Vanna; 1 Vega; 2 Vanna; 3 Volga; 4 Plotting Vega and Gamma; i Against strike; ii Against time; 5 Shadow Gamma - including the impact of volatility changes; 6 Vega, Gamma, Vanna and Volga surfaces; 7 Next steps, and questions; 10 Hedging Higher-Order Greeks; 1 Hedging Gamma and Vega - framework; i Hedging higher-order Greeks for a single short position
11 Reviewing the Solver Solution
Includes bibliographical references and index.
This book provides a hands-on, practical guide to understanding derivatives pricing. Aimed at the less quantitative practitioner, it provides a balanced account of options, Greeks and hedging techniques avoiding the complicated mathematics inherent to many texts, and with a focus on modelling, market practice and intuition.
Microsoft Excel (Computer file)
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