Name: Dynamic hedging
ISBN: 9780471152804

Dynamic hedging

Dynamic Hedging is the definitive source on derivatives risk. It provides a real-world methodology for managing portfolios containing any nonlinear security. It presents risks from the vantage point of the option market maker and arbitrage operator. The only book about derivatives risk written by an experienced trader with theoretical training, it remolds option theory to fit the practitioner's environment. As a larger share of market exposure cannot be properly captured by mathematical models, noted option arbitrageur Nassim Taleb uniquely covers both on-model and off-model derivatives risks.

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lordnachoJan 2026

Options, Futures, and Other Derivatives by Hull, that's the classic.

Not sure how exotic he gets but likely the page that sells this book will have other options books.

I think there's one by Espen Hauge about exotics.

Relevant book by Nassim Taleb (before his big break) is Dynamic Hedging, which tells you what to do with your option risk once you have it.

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lordnachoAug 2022

Whenever the topic comes up, I throw out a reference to Hull's Futures, Options and other derivatives, Wilmott's Quantitative Finance, and possibly also Taleb's Dynamic Hedging.

That's more than enough on the instrument math side, most of what you'll see is pretty mundane stuff, unless you end up on an exotics structuring desk.

I'd also note that JS and other MMs mostly don't do anything requiring you to know the intimate details of these things, a lot of it is understanding how the market works rather than the deep instrument math. That might mean other kinds of math of course.

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lordnachoJan 2021

The problem is the books don't really tell you. They're written in this mathematical way that kinda obscures how to actually think about them practically. If you're more into math maybe stochastic calc will be just fine for you.

Here we go anyway:

Hull: Futures, Options, and Other Derivatives

Natenberg. Don't recall the name, but this is maybe the closest to practical.

Paul Wilmott, Quantitative finance.

Taleb, Dynamic Hedging. Got a signed copy :)

Also I think it's smart to read about instruments that aren't options, ie don't just cut to the chase. Time value of money, futures, forwards, bonds, swaps, equities. Then vanilla options on all those things, then exotics.

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raymondhFeb 2020

The book "Dynamic Hedging" stands apart from the others with none of the typical NNT personality. Instead, it reads more like a math book with amazing theorems such as predicting the exact order that various kinds of hedgers will get wiped-out in a volatile market.

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ackbar03Sep 2019

I have a lot of respect for taleb even though I think he lost his marbles after a certain point. His book dynamic hedging was like the Bible/textbook for my first job (structured products trading). The guy really knows his stuff. I think his mass-market type books like black swan and antifragile really diluted his reputation if anything, and now he acts like some crazy philosopher rather than someone who really knows his craft

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jkqwzsooDec 2018

I'm far from an expert. I don't trade professionally (i.e. I don't derive my income from it), and I'm a chemical engineer by day.

I think the best resource for anyone starting out investing would be "A Random Walk Down Wall Street" (Burton Malkiel), and maybe "The Intelligent Investor" (Benjamin Graham), even if you don't intend to be a traditional value investor. I think these books (I'll admit I haven't read all of The Intelligent Investor) set your expectations. I also listen to Masters in Business, Odd Lots, and P&L podcasts by Bloomberg (P&L is more short-term, while MiB and Odd Lots are more generally applicable). Both of those books might be floating around the internet.

I also really enjoyed "The Physics of Wall Street" (James Weatherfall). It's a look into how financial mathematics got started and how it has grown and been increasingly applied in modern finance.

If you're interested in options and other derivatives (I find derivatives to be the most interesting, and least arbitrary, financial product), I'd start with John Hull's "Options, Futures, and Other Derivatives", which is a textbook at maybe the sophomore or junior level. I hear the PDF is freely circulated online. I think understanding how options and futures work is essential for understanding finance. A slightly more technical text, "Dynamic Hedging" (Nassim Nicholas Taleb) is also good (and maybe also available online somewhere...). It is less philosophical and polemic than his other books, but doesn't resist calling you an idiot either, as is Taleb's style.

You might also find work on non-ergodicity (Ole Peters), the Kelly criterion, universal portfolios (Thomas Cover, 1991), and Ed Thorpe (a mathematician who derived a precursor to the famous Black-Scholes model) of interest (Ed Thorpe is an incredibly interesting person in his own right). If you find yourself wanting to get into technical analysis, I'd recommend "Evidence-Based Technical Analysis" by David Arons (a spoiler: the evidence is not good). If you're interested in ML applied to trading, I keep seeing references to Advances in Financial Machine Learning (Marcos Lopez de Prado), although I haven't actually read it.

Regarding other financial products, CME has a large number of resources available for understanding futures trading, although futures are generally too high value for regular traders to use safely (the highly liquid /ES contract controls ~$130,000 exposed to the S&P500 and allows one to take about 22x margin, or even as high as 250x for intraday trading). Similarly, there are some nice introductions to the forex market, but again I'd caution you to stay away. And as much as I'd similarly caution you about blindly following their advice (and in general about being a "volatility seller"[1,2] -- see Taleb's book), TastyTrade produces a ton of videos on options trading (particularly retail options trading), which include the mechanics of options trading and how their trading platform works (which is similar to TD's platform -- the CEO/Founder, Sosnoff, was involved in the development of it when he was at TD). You can download TD's ThinkorSwim and paper trade options, or just "preview" their application with delayed prices and see how options work.

Finally, rather than r/wallstreetbets (which is now 99% low quality memes and loss porn), I'd recommend checking out r/options and r/thewallstreet, which are more professional forums, and potentially forums such as EliteTrader and Nuclear Phynance as well.

[0] https://www.bloomberg.com/news/audio/2018-12-07/why-part-of-...

[1] https://www.bloomberg.com/news/articles/2018-11-29/broker-se...

[2] https://www.bloomberg.com/news/articles/2018-02-06/credit-su...

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