The Volatility Surface: A Practitioner’s Guide

Product Description

Praise for The Volatility Surface

“I’m thrilled by the appearance of Jim Gatheral’s new book The Volatility Surface. The literature on stochastic volatility is vast, but difficult to penetrate and use. Gatheral’s book, by contrast, is accessible and practical. It successfully charts a middle ground between specific examples and general models–achieving remarkable clarity without giving up sophistication, depth, or breadth.”
–Robert V. Kohn, Professor of Mathematics and Chair, Mathematical Finance Committee, Courant Institute of Mathematical Sciences, New York University

“Concise yet comprehensive, equally attentive to both theory and phenomena, this book provides an unsurpassed account of the peculiarities of the implied volatility surface, its consequences for pricing and hedging, and the theories that struggle to explain it.”
–Emanuel Derman, author of My Life as a Quant

“Jim Gatheral is the wiliest practitioner in the business. This very fine book is an outgrowth of the lecture notes prepared for one of the most popular classes at NYU’s esteemed Courant Institute. The topics covered are at the forefront of research in mathematical finance and the author’s treatment of them is simply the best available in this form.”
–Peter Carr, PhD, head of Quantitative Financial Research, Bloomberg LP Director of the Masters Program in Mathematical Finance, New York University

“Jim Gatheral is an acknowledged master of advanced modeling for derivatives. In The Volatility Surface he reveals the secrets of dealing with the most important but most elusive of financial quantities, volatility.”
–Paul Wilmott, author and mathematician

“As a teacher in the field of mathematical finance, I welcome Jim Gatheral’s book as a significant development. Written by a Wall Street practitioner with extensive market and teaching experience, The Volatility Surface gives students access to a level of knowledge on derivatives which was not previously available. I strongly recommend it.”
–Marco Avellaneda, Director, Division of Mathematical Finance Courant Institute, New York University

“Jim Gatheral could not have written a better book.”
–Bruno Dupire, winner of the 2006 Wilmott Cutting Edge Research Award Quantitative Research, Bloomberg LP

Review

“…I do recommend this book…” (
Zentralblatt MATH , Vol. 1118 2007/20)

From the Inside Flap

Understanding the volatility surface is a key objective for both practitioners and academics in the field of finance. Implied volatilities evolve randomly and so models of the volatility surface—which is formed from implied volatilities of all strikes and expirations—need to explicitly reflect this randomness in order to accurately price, trade, and manage the risk of derivative products.

Author and financial professional Jim Gatheral is intimately familiar with these issues and, in The Volatility Surface, he shares his many years of knowledge and experience to help make sense of it all. Written by a practitionerfor practitioners, The Volatility Surface examines why options are priced as they are and—starting from a powerful representation of implied volatility in terms of a weighted average ofrealized volatilities—explores the implications of various popular models for pricing.
The first half of this book focuses on setting up the theoretical framework, while the later chapters are oriented towards practical applications. Informative and accessible, The Volatility Surface:

Contains a detailed derivation of the Heston model and explanations of many other popular models such as SVJ, SVJJ, SABR, and CreditGrades
Discusses the characteristics of various types of exotic options from the humble barrier option to the super exotic Napoleon
Exhaustively covers volatility derivatives with elegant and robust presentations of the latest research
Examines performance of exotic cliquet contracts through in-depth case studies of actual bonds that have already matured

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