Options on Foreign Exchange

Rating:
Summary: From the review in Futures Magazine by Howard Simons
Review: ...traders cannot play the game anymore at any level without at least acquainting themselves with all of the tools of the trade.

This compact volume is a great place to start this acquaintance for newbies and an excellent reference to keep on hand for veterans. David DeRosa, a professor at Yale University's School of Management and a regular contributor to Bloomberg News, conducts a brilliantly concise tour of his world, including a description of currency trading operations and mechanics seldom introduced into any academic tome.

...Chapters follow quickly and concisely on plain vanilla options pricing, on volatility, and on the differences between European and American options in the foreign exchange market. Two concluding chapters on barrier options and a small selection of non-barrier exotic options (average rate, basket, quantos and compound options) complete the text.

...The true economic cost of training a trader should be enough to make any trading firm weep. Including this book in any package of materials or training session would be a cost-effective move indeed.

Howard L. Simons is a professor of finance at the Illinois Institute of Technology and author of The Dynamic Option Selection System (John Wiley & Sons, 1999)...

Rating:
Summary: Completely revised and updated...
Review: About Options on Foreign Exchange, Second Edition: It is well known that foreign exchange is the world's largest financial market. What is less well known is that the market for currency options and other derivatives on foreign exchange is also massive and still growing. This book has been written for end users of currency options and newcomers to the field of foreign exchange. It employs the real-world terminology of the foreign exchange market whenever possible so that readers can make a smooth transition from the text to actual market practice. The opening chapters present a substantive discussion of the spot and forward foreign exchange market and the mechanics of trading currency options. Next, attention turns to the pervasive Black-Scholes-Merton option pricing model as applied to currency options. An examination of currency futures options follows. The final chapters are devoted to exotic currency options, with special attention given to a variety of barrier currency options. Average rate, compound, basket, and quantos currency options are also covered. Options on Foreign Exchange, Second Edition is written for traders, corporate treasurers, risk managers, and students of financial markets.

David F. DeRosa is President of DeRosa Research and Trading, Inc. and Adjunct Professor of Finance at the Yale School of Management. He has worked at a number of Wall Street asset management firms and has traded foreign exchange for Swiss Bank Corporation, New York. DeRosa received his PhD in Finance and economics from the Graduate School of Business of the University of Chicago. He is the editor of Currency Derivatives (Wiley), and the author of Managing Foreign Exchange Risk. DeRosa also contributes columns on international finance to Bloomberg News.

Advance praise for Options on Foreign Exchange, Second Edition: "A clearly written manual that flows smoothly. Whether you have 20 years of experience in the FX options markets or none, you will learn something interesting from reading this book. Highly recommended for both traders and non-traders." --Adam Kreysar, Global Head FX Options, Warburg Dillon Read

"DeRosa presents technical material with a minimum of technical fuss. Filtered through his scholarship and practical trading experience, up-to-date topics such as exotic options, forward volatilities, and the volatitlity smile become accessible. The book will be extremely useful to asset managers and risk managers." --Allan M. Malz, Partner, The RiskMetrics Group

"This new edition of Options on Foreign Exchange provides an exhaustive review of the literature on currency options, in addition to covering the practical aspects of the business. It is greatly pedagogical and well written-as can be expected from David DeRosa." --Nassim Taleb, President, Empirica Capital LLC

Rating:
Summary: Good introduction
Review: Mr De Rosa has written a well structured
introduction into the forex option market.
The clear examples and the pleasant writing
style make it an easy read (two nights, tops!).
Starting by showing the reader an EBS
dealing screen, he explains the price setting using the Black-Scholes model.
A bit more explanation might have been
in order on how the interbank market
really works in practice (volatility runs for ATMS Straddles, market making, etc...).
The section on exchange traded options and
futures is interesting for readers unaware
of the important differences with the OTC market.
The formulas for the Greeks contain almost
no typo's thus making the book useful as
a reference for a programmer.
The section on barrier options is a bit
disappointing. The relationship between
higher order derivatives and the volatility
smile might not have been out of place
(I am referring to the celebrated "three option
method" to quickly price exotics without
having to use MC-simulation).
Also, when introducing alternatives to the
BS-model, the formulae appear as by Deus
ex Machina. Nothing is said about calibration
difficulties. And when introducing alternative
models, why not going into long term fx
options ?
All in all, I would recommend the book to
any beginning forex option trader or salesperson,
but as those people generally do not earn the
largest of salaries, it is even better if they
borrow it from their institution's library.

Rating:
Summary: Non-technical but intuitive
Review: This book is a nice introduction to the subject. A trader would benefit from reading the text more than a financial engineer would. It may be a good idea to read the author's "Currency Derivatives," as well. People who have read any text at the level of Hull or higher are advised to move on to "Currency Derivatives" directly.

Rating:
Summary: Non-technical but intuitive
Review: This book is a nice introduction to the subject. A trader would benefit from reading the text more than a financial engineer would. It may be a good idea to read the author's "Currency Derivatives," as well. People who have read any text at the level of Hull or higher are advised to move on to "Currency Derivatives" directly.

Rating:
Summary: Updated Second Edition
Review: This second edition has been greatly expanded with materials on the mechanics of the foreign exchange and options markets. The sections on the international monetary system have been updated, especially with respect to the European monetary system. New sections have been added on exotic currency options, specifically on barriers, average rate, basket and quantos options. There are two new chapters, one on currency option applications and another on currency overlay management.