In modern derivatives trading, Black-Scholes theory is only a starting
point. Asset volatilities are not constant, but change with market
conditions. Large price moves are associated with periods of market
turbulence and this leads to a smile shaped curve of the volatility
implied from market prices.
Smile Pricing Explained provides a clear and thorough explanation of the
concepts of smile modelling that are at the forefront of modern
derivatives pricing. The key models used in practice are covered,
together with numerical techniques and calibration.
Dr Austing guides the reader from the principle of no arbitrage and
Black-Scholes, through local and stochastic volatility models, to arrive
at a deep understanding of the state of the art of smile modelling.
Along the way, practical introductions to the Monte Carlo and finite
difference numerical approaches are provided, with user friendly
guidance to the deep mathematics underlying the pricing theory.
Smile Pricing Explained provides a much-needed guide to the concepts and
complexities of smile modelling. Written in particularly accessible
style, topics are presented succinctly, and unnecessary complexity is
carefully avoided. Intuition is provided before mathematics so that
readers may enjoy the book without necessarily following every technical
detail. This book will prove a popular resource for both new and
established quantitative practitioners as well as graduate students who
wish to understand the realities of the area.
