11
OPTIONS – VOLATILITY AND THE GREEKS
11.2 Volatility smiles and skews
11.4 Value profiles prior to maturity
11.5 How options behave – the Greeks
This chapter starts with an extensive discussion of volatility, introduced in the previous chapter, and an essential ingredient for pricing options. Later we will introduce the ‘Greeks’, most of which measure how sensitive the option premium is to changes in the pricing variables. Finally we look at the way in which banks use delta hedging to manage their option books, and show how the costs of so doing compare with the premiums they receive.
11.1 Volatility
No matter which model we use, whether a closed-form model like Black–Scholes, a binomial ...
Get The Financial Times Handbook of Financial Engineering, 3rd Edition now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
