The Complete Guide to Option Pricing Formulas

Espen Gaarder Haug is an option pricing god. He’s passionate about derivatives, and in this book he’s documented almost every single option developed in the last 30 years.

The book is exhaustive and reads like a dictionary, rather than a textbook. There are explanations of each option and fully documented equations.  The book covers everything from the classic Black-Scholes model to Lookback options and Extendible options.

Additionally – and this is an immensely valuable resource worth much more than the cost of the book itself – you get VBA code and Excel spreadsheets for each option. The VBA may not contain the most efficient algorithms, but it works and offers a great starting point for your own faster implementations. The spreadsheets in the 2nd edition also contain all sorts of snazzy 3d plots

However, I have a couple of criticisms

  • The notation in the book is not consistent – Espen uses to the notation in the source material for each option (which varies from option to option). This is good if you want to refer back to the original sources, but in that case why would I want to use this book? I would have preferred consistent notation throughout.
  • I noticed a few errors in the first edition. For example, I noticed an error in the equations for the partial-time single asset barrier option, which led to an unintuitive result. However, many errors were corrected in the second edition

Despite these criticisms,  if quantitative finance is your passion, whether it’s on the front desk or in back-office research, you need this book.

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