We continue with options in this chapter, with a look at how options behave in response to changes in market conditions. To start we consider the main issues that a market maker in options must consider when writing options. We then review ‘the Greeks’, the measures by which the sensitivity of an option book is calculated. We conclude with a discussion on an important set of interest-rate options in the market, caps and floors.
KeywordsIncome Hull Volatility Vanilla Hedging
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Selected References and Bibliography
- Galitz, L. Financial Engineering, rev. edn, FT Pitman, 1995.Google Scholar
- Hull, J. Options, Futures and Other Derivatives, 4th edn, Prentice Hall, 2000.Google Scholar
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- Marshall, J. and Bansal, V. Financial Engineering, New York Institute of Finance, 1992.Google Scholar
- Tucker, A. Financial Futures, Options and Swaps, West Publishing, 1991.Google Scholar