The Volatility Smile (Wiley Finance) delves into the complexities of option valuation in finance. Author Emanuel Derman, a celebrated quant, co-authored this essential guide with Michael B. Miller, providing a comprehensive exploration of the Black-Scholes-Merton model and its limitations. Highlighting the phenomenon known as the volatility smile—where implied volatilities exhibit a non-linear relationship with strike prices—the book offers insights into advanced models that address these discrepancies.
Through detailed explanations of both foundational and cutting-edge concepts, Derman and Miller guide readers through the intricacies of financial valuation principles. They explain not only the mathematical underpinnings but also the underlying ideas that drive these models. By critically examining various models’ strengths, weaknesses, derivations, and assumptions, the authors equip readers with the knowledge to navigate and build their own financial models.
Topics covered include:
- The Black-Scholes-Merton model
- Advanced models addressing market behaviors
- Evaluation and construction of financial models
- Analysis of the volatility smile phenomenon
This book is a valuable resource for finance professionals, students, and anyone seeking to deepen their understanding of option pricing and its practical applications in the real world.
