This book contains contributions by the best-known and consequential researchers who, over several decades, shaped the field of financial engineering. It presents a comprehensive and unique perspective on the historical development and the current state of derivatives research. The book covers classical and modern approaches to option pricing, realized and implied volatilities, classical and rough stochastic processes, and contingent claims analysis in corporate finance. The book is invaluable for students, academic researchers, and practitioners working with financial derivatives, market regulation, trading, risk management, and corporate decision-making.

Contents:

• Using Option Pricing Information to Time Diversify Portfolio Returns (M S Scholes)


• How Good is Black–Scholes–Merton, Really? (P Wilmott)


• Probabilistic Interpretation of Black Implied Volatility (P Carr, L Wu, and Y Zhang)


• Probability-Free Models in Option Pricing: Statistically Indistinguishable Dynamics and Historical vs Implied Volatility (D Brigo)


• VIX and Derivatives (M Brenner)


• Multivariate Fractional Brownian Motion and Generalizations of SABR Model (M Musiela)


• Buy Rough, Sell Smooth (P Glasserman and P He)


• Volatility is Rough (J Gatheral, T Jaisson, and M Rosenbaum)


• Things We Think We Know (L C G Rogers)


• Cumulant Formulas for Implied Volatility (R Lee)


• Implied Volatility Asymptotics: Black–Scholes and Beyond (P Tankov)


• The Smile of Stochastic Volatility Models (J Guyon)


• A Neural Network Approach to Understanding Implied Volatility Movements (J Cao, J Chen, and J Hull)


• Modeling Volatility Risk in Equity Options Market: A Statistical Approach (D Dobi and M Avellaneda)


• A General Theory of Option Pricing (D Gershon)


• Old Problems, Classical Methods, New Solutions (A Lipton)


• 25 Years of Local Volatility and Beyond (B Dupire)


• Swap Rate à la Stock: Bermudan Swaptions Made Easy (D Gatarek and J Jabłecki)


• Thirty Years of Derivatives Market: Originality of the French Experience (N El Karoui)


• Option Prices in the Equity, Index and Commodity Markets: The 'Message from Markets' (E I Ronn)


• Options Markets in China: The New Frontier (H Li and Q Wang)


• Risk Exposure Valuation Using Measure Distortions: An Overview (D B Madan)


• Insider Trading (P Protter)


• Contingent Claims Analysis in Corporate Finance (M Crouhy, D Galai, and Z Wiener)

Readership: Academic researchers and practitioners working with financial derivatives and professionals involved in market regulation, trading and research on options, hedging and corporate decision making.

Key Features:

• The contributors to the book are some of the most influential researchers in financial engineering who shaped the field over the recent decades


• The reader can get first-hand information about the key milestones in financial engineering from their respective authors


• The book's content is extensive and covers the most significant developments in valuation, hedging, and trading of financial derivatives and corporate finance


• The book explains modern approaches to volatility in detail and covers local, stochastic, local-stochastic, and rough volatility models


• The book covers in-depth specialized derivatives markets, including commodities, French, and Chinese markets