Emanuel Derman

Michael B. Miller

The Volatility Smile The Black-Scholes-Merton option model was the greatest innovation of 20th century finance, and remains the most widely applied theory in all of finance. Despite this success, the model is fundamentally at odds with the observed behavior of option markets: a graph of implied volatilities against strike will typically display a curve or skew, which practitioners refer to as the smile, and which the model cannot explain. Option valuation is not a solved problem, and the past forty years have witnessed an abundance of new models that try to reconcile theory with markets. The Volatility Smile presents a unified treatment of the Black-Scholes-Merton model and the more advanced models that have replaced it. It is also a book about the principles of financial valuation and how to apply them. Celebrated author and quant Emanuel Derman and Michael B. Miller explain not just the mathematics but the ideas behind the models. By examining the foundations, the implementation, and the pros and cons of various models, and by carefully exploring their derivations and their assumptions, readers will learn not only how to handle the volatility smile but how to evaluate and build their own financial models. Topics covered include: The principles of valuation Static and dynamic replication The Black-Scholes-Merton model Hedging strategies Transaction costs The behavior of the volatility smile Implied distributions Local volatility models Stochastic volatility models Jump-diffusion models The first half of the book, Chapters 1 through 13, can serve as a standalone textbook for a course on option valuation and the Black-Scholes-Merton model, presenting the principles of financial modeling, several derivations of the model, and a detailed discussion of how it is used in practice. The second half focuses on the behavior of the volatility smile, and, in conjunction with the first half, can be used for as the basis for a more advanced course.

The Volatility Smile

Secret agents, gun runners, White Russians, and con men—they all play a part in Michael B. Miller's strikingly original study of interwar France. Based on extensive research in security files and a mass of printed sources, Shanghai on the Métro shows how a distinctive milieu of spies and spy literature emerged between the two world wars, reflecting the atmosphere and concerns of these years. Miller argues that French fascination with intrigue between the wars reveals a far more assured and playful national mood than historians have hitherto discerned in the final decades of the Third Republic. But the larger history set in motion by World War I and the subsequent reading of French history into global history are the true subjects of this work. Reconstituting through his own narratives the histories of interwar travel and adventure and the willful turning of contemporary affairs into a source of romance, Miller recovers the ambience and special qualities of the age that produced its intrigues and its tales of spies. This title is part of UC Press's Voices Revived program, which commemorates University of California Press’s mission to seek out and cultivate the brightest minds and give them voice, reach, and impact. Drawing on a backlist dating to 1893, Voices Revived makes high-quality, peer-reviewed scholarship accessible once again using print-on-demand technology. This title was originally published in 1994.

Spies, Intrigue, and the French Between the Wars

Shanghai on the Metro

A mathematical guide to measuring and managing financial risk. Our modern economy depends on financial markets. Yet financial markets continue to grow in size and complexity. As a result, the management of financial risk has never been more important. Quantitative Financial Risk Management introduces students and risk professionals to financial risk management with an emphasis on financial models and mathematical techniques. Each chapter provides numerous sample problems and end of chapter questions. The book provides clear examples of how these models are used in practice and encourages readers to think about the limits and appropriate use of financial models. Topics include: • Value at risk • Stress testing • Credit risk • Liquidity risk • Factor analysis • Expected shortfall • Copulas • Extreme value theory • Risk model backtesting • Bayesian analysis • . . . and much more

Quantitative Financial Risk Management

Europe and the Maritime World: A Twentieth-Century History offers a framework for understanding globalization over the past century. Through a detailed analysis of ports, shipping and trading companies whose networks spanned the world, Michael B. Miller shows how a European maritime infrastructure made modern production and consumer societies possible. He argues that the combination of overseas connections and close ties to home ports contributed to globalization. Miller also explains how the ability to manage merchant shipping's complex logistics was central to the outcome of both world wars. He chronicles transformations in hierarchies, culture, identities and port city space, all of which produced a new and different maritime world by the end of the century.

Michael B. Miller

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