Written by an experienced trader and consultant, Frans de
Weert's Exotic Options Trading offers a risk-focused
approach to the pricing of exotic options. By giving readers the
necessary tools to understand exotic options, this book serves as a
manual to equip the reader with the skills to price and risk manage
the most common and the most complex exotic options.
De Weert begins by explaining the risks associated with trading
an exotic option before dissecting these risks through a detailed
analysis of the actual economics and Greeks rather than solely
stating the mathematical formulae. The book limits the use of
mathematics to explain exotic options from an economic and risk
perspective by means of real life examples leading to a practical
interpretation of the mathematical pricing formulae.
The book covers conventional options, digital options, barrier
options, cliquets, quanto options, outperformance options and
variance swaps, and explains difficult concepts in simple terms,
with a practical approach that gives the reader a full
understanding of every aspect of each exotic option. The book also
discusses structured notes with exotic options embedded in them,
such as reverse convertibles, callable and puttable reverse
convertibles and autocallables and shows the rationale behind these
structures and their associated risks.
For each exotic option, the author makes clear why there is an
investor demand; explains where the risks lie and how this affects
the actual pricing; shows how best to hedge any vega or gamma
exposure embedded in the exotic option and discusses the skew
exposure.
By explaining the practical implications for every exotic option
and how it affects the price, in addition to the necessary
mathematical derivations and tools for pricing exotic options,
Exotic Options Trading removes the mystique surrounding
exotic options in order to give the reader a full understanding of
every aspect of each exotic option, creating a useable tool for
dealing with exotic options in practice.
"Although exotic options are not a new subject in
finance, the coverage traditionally afforded by many texts is
either too high level or overly mathematical. De Weert's
exceptional text fills this gap superbly. It is a rigorous
treatment of a number of exotic structures and includes numerous
examples to clearly illustrate the principles. What makes this book
unique is that it manages to strike a fantastic balance between the
theory and actual trading practice. Although it may be something of
an overused phrase to describe this book as compulsory reading, I
can assure any reader they will not be disappointed."
--Neil Schofield, Training Consultant and author of
Commodity Derivatives: Markets and Applications
"Exotic Options Trading does an excellent job in
providing a succinct and exhaustive overview of exotic options. The
real edge of this book is that it explains exotic options from a
risk and economical perspective and provides a clear link to the
actual profit and pricing formulae. In short, a must read for
anyone who wants to get deep insights into exotic options and start
trading them profitably."
--Arturo Bignardi
