Equity Hybrid Derivatives

Over the last few years, equity hybrid derivatives have gained the attention of financial professionals. Combining established asset classes—equity, credit, interest rates, and foreign exchange—equity hybrid derivatives pose a very interesting challenge when it comes to modeling techniques and forming a solid hybrid model framework. Written by the Quantitative Products team of Deutsche Bank, the world leader in innovative equity derivative transactions, this book will acquaint you with cutting edge thinking in modeling, valuing, and hedging for this market—which is increasingly being utilized for active investment strategies by hedge funds. Divided into four comprehensive parts, Equity Hybrid Derivatives offers a balanced, integrated presentation of theory and practice in equity derivative markets, with an emphasis on understanding new techniques for analyzing volatility and credit derivative transactions linked to equity. Part One of Equity Hybrid Derivatives offers valuable insight into different volatility models and their applications to equity markets. It also contains some very recent developments in this field, such as variance swap market models. In Part Two, you ll receive a brief review of short rate models and their incorporation into equity interest rate hybrid structures. Essential examples covered here include the conditional trigger swap, convertible bonds, and the very important constant proportion portfolio insurance (CPPI) structures. Part Three provides a thorough introduction to credit modeling and discusses its importance to equity credit hybrid derivative structures. Pricing and calibration techniques are examined in detail and important examples like equity default swaps (EDS) are also given. The final part of Equity Hybrid Derivatives is dedicated to the advanced pricing techniques applied to various hybrid and callable structures. Here, you ll become familiar with everything from copulas and forward partial differential equations to numerical solutions for multi factor pricing problems and American Monte Carlo techniques for derivative pricing. Filled with in depth insight and expert advice, Equity Hybrid Derivatives provides well rounded coverage of this growing class of structures. In every instance, the theory and facts presented are clearly analyzed through graphs, formulas, and examples—making a complex topic accessible more than ever before.