Reviews for Dynamic Hedging:(Wiley Financial Engineering Series) Managing Vanilla and Exotic Options

The average rating for Dynamic Hedging:(Wiley Financial Engineering Series) Managing Vanilla and Exotic Options based on 2 reviews is 3 stars.

Review # 1 was written on 2009-09-05 00:00:00 Robert Bernstein Do you remember reading The Divine Comedy and getting (finally) to the part where the two poets (apparently on an extended smoke break from their barista jobs in Brooklyn) get to the ninth circle of Hell only to think to yourself, "Brutus and Cassius? Really? I mean Judas I totally get, and these guys are distasteful and all, but the inner circle?" Well, your discombobulation is pardonable because, in fact, it was Dante who was confused. We may forgive Signor Alighieri for his error, for he was born 700 years too early to recognize the ominously darkened visage of Nassim Nicholas Taleb next to the ludicrously grinning mug of Paul Wilmott as they bookend Judas Iscariot for all of eternity. But I digress... The thing is that this book is bad. Really bad, and in need of an editor. The redundant sentences bounce off of each other without forming a coherent picture of anything but Taleb's ego. He says in the preface that he "clambered up to my attic where, during 6 entire months, I spent 14 hours a day, 7 days a week immersed in probability (at a Ph.D. level). Then I began to write this book." Bullshit. Note that the "(at a Ph.D. level)" is really in there. The good Dr. spent 2352 hours (conservatively) preparing to write a book that says in all of its 500 pages something I can say in 3 words: derivatives are nonlinear. As they say in The Big Lebowski, I guess he's just "not into that whole brevity thing." I kept waiting for the Ph.D. level probability to show up. It didn't. There was an apparently straight-faced claim that we should care about the seventh derivatives of our options positions, which seems more than a bit ludicrous. All this was interspersed with asides in grey boxes that completely disrupted the flow of the text. Honestly, the best way to read the book is probably to read the grey boxes and nothing else. And then there was the relentless repitition of the refrain that quants don't know what they are talking about, experienced traders know these things in their sleep. Taleb, despite his claims of 2400 hour marathon mathematical musings cannot seem to make up his mind if he is a mathematician, a trader, or both. The only thing that is clear is that he believes himself to be above all of them. 2400 hours and the only thing he learned to do was walk on water... This book is not without a following, which to me is very odd. I suspect it originates from the lack of other books on the subject at the time of its publication. Taleb does manage to point out convincingly (by beating you over the head with it for 500 pages) that nonlinear instruments carry with them risks that linear ones do not. Kudos. Still, the amount of intuition garnered about how to deal with, or even think about such things contained in Dynamic Hedging is tiny compared with, for example, the books by Sheldon Natenberg or Lawrence G. McMillan. Lots of people write bad books, so what is it that qualifies Mess. Taleb and Wilmott to be satanic hors d'oeuvres until the end of days? The ninth circle of hell is about betrayal, and these gentlemen have repeatedly run roughshod over the very people who would be their biggest champions: quants. In their blindingly narcissitic quest to prove to the world that they are smarter than their peers, they have done more than any source since "Revenge of the Nerds" to perpetuate the myth that people schooled in the mathematical sciences can't tie their own shoes without an M.B.A. with bright eyes and a firm handshake to show them how. They need you to believe that all quants follow models blindly and without question in order for you to be impressed by the fact that they themselves do not. The thing is, Nassim Taleb is a very smart guy (the jury is totally out on Wilmott). Though this book is quite poorly written, I understand that his others (which I've not read) are better, and his public remarks seem to indicate that he has a much better than average grip on the statistical realities of the market. His approaches seem sound. If he had just held the scimitar aloft and said, "let us slay the black swan," then I assume that lots of quants would have been there with him sparking up the torches and sharpening the pitchforks. Instead, he chose to demonize his own kind in order to stand even farther apart. If this sounds familiar, it's because it is the plot of many a teen movie. The coolest of the unpopular kids, when given an opportunity to sit at the cool kids' table in the cafeteria (read: interviewed by CNBC), inevitably turns his back on his true friends. Et tu, Nassim? Wilmott plays his own insidious version of this game. In many ways, his is worse. Whereas Taleb wants to be recognized for his genius, Wilmott wants to be paid for it. He convinces the quants (and their employers) that they are more or less worthless, but for the tidy sum of $17,999.00 (honestly) he can train them to get their Certificate in Quantitative Finance (CQF) designation, which he invented, and that all will be right with the world. This "there's something wrong with you that only I can fix" attitude reminds me of Scientology a bit. So what do we do with these two poster boys for Muchausen-Syndrome-by-Proxy? I say call it like you see it. Not every book that sells well is a great one. That liquid splashing your ear is not rain, my friend.

Review # 2 was written on 2012-12-10 00:00:00 Nikole Juart 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.