The book Black-Sholes
and beyond is viewed as the best book for option pricing models, written by
Neil A. Chriss and Ira Kawaller. It clearly presents the fundamental thinking behind the
Black-Scholes formula and all of the underpinning assumptions. The author Chriss
presents a logical case for the derivation of the BS-formula with an
understanding of its ingredients and limitations. To flesh-out the BS
limitations, Chriss presents 6 chapters on pricing options on Binomial Trees.
Chriss' exposition presents trees as an alternative and powerful tool for the
valuation of European, American, and exotic options. Trees are treated as a
superset of tools to Black-Scholes and moreover as field of their own.
Chriss
also presents a wealth of intuitive explanations to pricing options -
explanations that help the reader gain a greater understanding of the
limitations and problems that the current methods face. Often it is hard to
find a text that presents in detail the shortcomings of a method or technique,
but as any researcher would know, understanding the current limitations is
fundamental to advancing the state-of-the-art. In this respect, Chriss goes way
beyond any textbook available today.
For the first
time, the basics on modern option pricing are explained ``from scratch'' using
only minimal mathematics. Market practitioners and students alike will learn
how and why the Black-Scholes equation works, and what other new methods have
been developed that build on the success of Black-Shcoles. The
Cox-Ross-Rubinstein binomial trees are discussed, as well as two recent theories
of option pricing: the Derman-Kani theory on implied volatility trees and Mark
Rubinstein's implied binomial trees. Black-Scholes and Beyond will not only
help the reader gain a solid understanding of the Balck-Scholes formula, but
will also bring the reader up to date by detailing current theoretical
developments from Wall Street. Furthermore, the author expands upon existing
research and adds his own new approaches to modern option pricing theory. Among
the topics covered in Black-Scholes and Beyond: detailed discussions of pricing
and hedging options; volatility smiles and how to price options ``in the
presence of the smile''; complete explanation on pricing barrier options.
Black-Sholes and
beyond is an in-depth look at option pricing models, fully exploring both the
classical option pricing theory, as well as the current state of option pricing
theory. There’s a fully walk through of the calculations and equations involved.
It seems like it
is one of the best textbook on option pricing model. Hope it helps for someone
who is interested in this topic.
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