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Introduction.

The Trading Process.

Chapter 1. Option Pricing.

The Black Scholes Merton Model.

Summary.

Chapter 2. Volatility Measurement and Forecasting.

Defining and Measuring Volatility.

Definition of Volatility.

Alternative Volatility Estimators.

Close to Close Estimator.

Parkinson Estimator.

Garman Klass Estimator.

Rogers Satchell Estimator.

Yang Zhang Estimator.

Using Higher Frequency Data.

Forecasting Volatility.

Maximum Likelihood Estimation.

Forecasting the Volatility Distribution.

Summary.

Chapter 3. Implied Volatility Dynamics.

Volatility Level Dynamics.

Smile Dynamics.

Strengths.

Weaknesses.

Summary.

Chapter 4. Hedging.

Ad-Hoc Hedging Methods.

Hedging at Regular Intervals.

Hedging to a Delta Band.

Hedging Based On Underlying Price Changes.

Utility Based Methods.

The Asymptotic Solution of Whalley and Wilmott.

The Double Asymptotic Method of Zakamouline.

Estimation of Transaction Costs.

Strengths.

Weaknesses.

Aggregation of Options on Different Underlyings.

Summary.

Chapter 5. Hedged Option Positions.

Discrete Hedging and Path Dependency.

Volatility Dependency.

Summary.

Chapter 6. Money Management.

Ad-Hoc Schemes.

The Kelly Criterion.

Good Points.

Bad Points.

Alternatives to the Kelly Criterion.

Trade Sizing in a Continuously Changing Setting.

A Simple Approximation.

Summary.

Chapter 7. Trade Evaluation.

General Planning Procedures.

Risk Adjusted Performance Measures.

The Sharpe Ratio.

Alternatives to the Sharpe Ratio.

Setting Goals.

Persistence of Performance.

Relative Persistence.

Absolute Persistence.

Summary.

Chapter 8. Psychology.

Self Attribution Bias.

Overconfidence.

The Availability Heuristic.

Short Term Thinking.

Loss Aversion.

Conservatism and Representativeness.

Confirmation Bias.

Hindsight Bias.

Anchoring and Adjustment.

Summary.

Chapter 9. Lifecycle of a Trade.

Pre-Trade Analysis.

June 25th 2007.

June 26th 2007.

June 27th 2007.

June 28th 2007.

June 29th 2007.

July 2nd 2007.

July 3rd 2007.

Post-Trade Analysis.

Chapter 10. Conclusion.

Execution Ability.

Concentration.

Product Selection.

Appendix A. Model Free Implied Variance and Volatility.

The VIX Index.

Appendix B. Spreadsheet Instructions.

Garch.

Volatility Cones and Skew and Kurtosis Cones.

Daily Option Hedging Simulation.

Trade Evaluation.

Trading Goals.

Corrado Su Skew Curve.

Mean Reversion Simulator.

Reader Resources.

Essential Books.

Thought Provoking Books.

Useful Websites.

References.

About the CD-ROM.

Index.

Library of Congress subject headings for this publication:

Options (Finance)

Hedging (Finance)

Futures.

Financial futures.