Dynamic Hedging: Managing Vanilla and Exotic Options

Taleb is one arrogant dude who loves flooding his books with archaic words which were last employed in the English Language by Geoffrey Chauncer. But alas, Dynamic Hedging is a strong advanced text which goes through many nuanced topics. For example, he makes some good points on managing option greeks. Some chapters I really enjoyed which are hugely important in practice that you don't learn in any classroom: soft American options, discrete delta vs continuous delta, fungibility. Just a warning that you might have to read over sections multiple times before you digest ideas. For example, for american options, you can tend to think of the early exercise having some sensitivity to interest rates (as rates go higher, it becomes more optimal to exercise puts and less optimal to exercise calls), so in some circumstances, the early exercise provision of american option is actually an option on rates. Also, every mathematician teaches delta as a continuous derivative d[option value]/d[spot], but really what's important is to the know the delta at discrete intervals since no one hedges continuously and also since in a real options book the greek sensitivities might flip or go through extreme changes over discrete intervals. Just some great material which makes you think hard. The structure of the book jumps over the place, but mainly Taleb is focused on options, volatility, and exotics. So not exactly a good book on vanilla rates or commodities for example. This text is certainly one I keep as a reference guide on my desk. As a sign of its value, everytime I read it, I do learn something new. I rated it highly based solely on the excellent and juicy material but the writing style is really horrible. Not for beginners but a great read for anyone interested in the deep details of trading derivatives.

Excellent! This book is about how to avoid the absorbing barrier of bankruptcy! Taleb does an excellent job of covering the practical and mathematical (in a practical way) properties of options trading. There are no recommendations about volatility spreads but you will learn more about how vol, the Greeks, and time impact your P/L than you thought possible. The most interesting things discussed were the practical uses and impacts of unexpected market shifts and the consequences to the trader (liquidity holes, huge change in pricing and the impact on the traders portfolio, the limitations of Black scholes and delta hedges... when and how to use them). I bet you have never thought about the 7th derivative of an option contract and how it affects you P/L. Taleb discusses how to deal with all of these issues and much more. Build an anti-fragile portfolio. Excellent guide on the properties of options and their impact on your portfolio! Thanks Nassim!

Very academic, but extremely insightful. I would recommend this book to anyone looking to get past just the basics. This book assumes that you are already familiar with the basic options spreads (i.e., Iron Condors, Vertical Spreads, etc.) and provides many equations for creating Delta neutral hedges and managing your risk. He then identifies the short-comings of each equation. Most of his examples are accompanied by charts to help his explanations. As an intermediate trader, this book helped bring my options trading to the next level. Although it does not cover many of the derivatives that caused the collapse in 2008, such as Credit Default Swaps or Interest Rate Swaps. Overall, a very good book and I would recommend it to any beginning trader that is looking to advance.

This isn't so much a review as an inquiry - I'm still working through this book, but I've noticed that it is replete with algebraic errors. Taleb doesn't always go through every step of his calculations, so they're difficult to follow. Does anyone else notice these errors or am I getting caught in the algebra? An example is on page 38 towards the top: He says that 12,500,000/.985 is 1,269,000. Even with the rounding (shaving off the 355), I'd say he's off by a factor of 10. Shouldn't the answer by 12,690,000? To confirm this, in the next paragraph he writes that a 1 cent rise in the futures price will yield $125,000 in profits on the future (12,500,000*.01) or $126,900 on the forward hedge. Intuitively, it seems that to get $126,900, you could divide $125,000 by .985 or multiply 12,690,000 (the answer you should've previously arrived at) by .01. There are other errors like this throughout the book - anyone else notice them?

The book is a difficult read the first time around while you get used to Taleb's style. It is because his style is so refreshingly different from everything published on the subject before and 10 years later I don't see anything that comes close. If you are a beginner, get the basic option math down (Hull) then read Taleb, and be patient. I have the original edition and have read it several times from cover to cover and I don't see the "numerous" errors several reviewers are complaining about. There are a few very obvious typos towards the end of the book, but all the conclusions and intuition is right. If you think it's wrong, it's most likely you, not the book. Go reread it and think about it, you will get it and you will want to thank Taleb for making you think. I am a vol trader and I use this book to filter out idiots. If this book ticks you off, you don't have a makeup of a trader. Do yourself a favor and find something else to do. People who give this book a negative review are most frequently quants. His criticism towards guants has a purpose - it is to make you as an impressionable young trader aware that a person with a PhD does not have all the answers, and that you should not be intimidated and use your own head. If this ticks quants off then so be it. The book is not for them.

A great book from the best professional in the options trading I know. If you finished reading books like "Options, futures and other derivatives" it's a good time to go up one level and read the Dynamic Hedging by N. Taleb. It requires more effort to understand the author's intentions, but it totally worth it.

This is a fairly advanced Text on options. Taleb jumps right into option Greeks from the introduction. It is mostly oriented towards institutional traders and as a person with exposure just to equity options it goes right above me. So I had to go back and forth with Wiki to understand what he is talking about. You could see traces of Fooled by Randomness and Black Swan as he deals with various risk issues. Little bit pricey but goes to show even professional traders use broken models to invest millions of client money. My personal experience is Fundamentals of an equity affect its option pricing more than Vega/Theta/Row. Delta and Gama are somewhat in play. Taleb calls them liquidity holes but mostly it is Fundamental analysis. If a company has a massive debt restructuring coming up then options will behave differently before and after the event. Even Beta changes after the event.

Not a page turner. This is one of those books that requires the reader to work hard for the gems hidden within, but it is Taleb who has done the really hard work of organizing information in a way that makes the gems accessible to the reader in the first place. This book is more about exploring and explaining effective thought process in risk management than it is a "how to" manual. I am reminded of the John Houseman character in "the Paper Chase" TV series who says: "you come into the class with a head full of mush. You teach yourselves the law, I teach you to think like a lawyer." This book teaches the reader to think like a trader.

Muito didático e claro. Oferece muita informação de diversos cenários. Vale cada centavo.

Still a very good reference for volatility trading 25 years after its publication. Perhaps it needs some updating on the statistical analysis of volatility, but you can find those updates in more recent publications of the author.

I All I can say is that this is the best Start for anybody wanting to trade Exotic Options At a retail Level, but also wishing to start a career in any global Financial Center. This Book could change your life I.e ' you will Win or you Will Lose' playing this Game. Good Luck Everybody the Game is On.

I did not enjoy that book as much when I was still unfamiliar with the field: maybe it is a bit disorganised. Some of it is however very accessible to beginners. When I go back to it I always appreciate it a bit more than the previous time. It deals with important subjects in derivatives trading that are rarely presented anywhere else.

That this is a pirate printed book selling on the market for 5and a half k bucks