Markets: A Rigorous Course
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Readings and resources

Core about 5 min

Read first

  1. Sinclair, E., Volatility Trading, 2nd ed., Wiley, 2013: chapters on volatility measurement (estimators), hedging (the P&L derivation of 9.3) and the variance premium.
  2. Hull, J., Options, Futures, and Other Derivatives, 11th ed., Pearson: the chapters on the Greek letters, volatility smiles, and trading strategies involving options (chapter numbers drift across editions).
  3. M09A, for the Indian conventions (the chain, weekly expiries, margins, adjustments) applied to the strategies of 9.7.

Then, for depth

  1. Gatheral, J., The Volatility Surface: A Practitioner's Guide, Wiley, 2006: chs. 1–4 (local and stochastic volatility), ch. 11 (variance swaps).
  2. Sinclair, E., Positional Option Trading, Wiley, 2020: ch. 4 (the variance premium) and the chapters on sizing.
  3. Natenberg, S., Option Volatility & Pricing, 2nd ed., McGraw-Hill, 2015: volatility spreads, risk considerations.
  4. Demeterfi, K., Derman, E., Kamal, M., Zou, J. (1999), "A Guide to Volatility and Variance Swaps", Journal of Derivatives 6(4): 9–32 (Goldman Sachs Quantitative Strategies note "More Than You Ever Wanted to Know About Volatility Swaps").
  5. Cboe, VIX White Paper (methodology): https://www.cboe.com/micro/vix/vixwhite.pdf (check for the current version on cboe.com).
  6. NSE, India VIX page and computation methodology: https://www.nseindia.com/products-services/indices-india-vix (also the older page https://nseindia.com/products/content/equities/indices/india_vix.htm).

Papers cited

  • Parkinson, M. (1980), "The Extreme Value Method for Estimating the Variance of the Rate of Return", Journal of Business 53(1): 61–65.
  • Garman, M., Klass, M. (1980), "On the Estimation of Security Price Volatilities from Historical Data", Journal of Business 53(1): 67–78.
  • Rogers, L.C.G., Satchell, S. (1991), "Estimating Variance from High, Low and Closing Prices", Annals of Applied Probability 1(4): 504–512.
  • Yang, D., Zhang, Q. (2000), "Drift-Independent Volatility Estimation Based on High, Low, Open, and Close Prices", Journal of Business 73(3): 477–491.
  • Feller, W. (1951), "The Asymptotic Distribution of the Range of Sums of Independent Random Variables", Annals of Mathematical Statistics 22(3): 427–432.
  • El Karoui, N., Jeanblanc-Picqué, M., Shreve, S. (1998), "Robustness of the Black and Scholes Formula", Mathematical Finance 8(2): 93–126.
  • Carr, P., Madan, D. (1998), "Towards a Theory of Volatility Trading", in R. Jarrow (ed.), Volatility, Risk Books.
  • Ahmad, R., Wilmott, P. (2005), "Which Free Lunch Would You Like Today, Sir? Delta Hedging, Volatility Arbitrage and Optimal Portfolios", Wilmott Magazine, Nov 2005.
  • Bertsimas, D., Kogan, L., Lo, A. (2000), "When Is Time Continuous?", Journal of Financial Economics 55(2): 173–204.
  • Carr, P., Wu, L. (2009), "Variance Risk Premiums", RFS 22(3): 1311–1341. https://econpapers.repec.org/RePEc:oup:rfinst:v:22:y:2009:i:3:p:1311-1341
  • Bakshi, G., Kapadia, N. (2003), "Delta-Hedged Gains and the Negative Market Volatility Risk Premium", RFS 16(2): 527–566.
  • Coval, J., Shumway, T. (2001), "Expected Option Returns", Journal of Finance 56(3): 983–1009.
  • Bollerslev, T., Tauchen, G., Zhou, H. (2009), "Expected Stock Returns and Variance Risk Premia", RFS 22(11): 4463–4492.
  • Sankar, G., Ramachandran, S., Lukose P J, J. (2020), "Dynamics of variance risk premium: Evidence from India", International Review of Economics & Finance 70: 321–334. https://econpapers.repec.org/RePEc:eee:reveco:v:70:y:2020:i:c:p:321-334
  • Breeden, D., Litzenberger, R. (1978), "Prices of State-Contingent Claims Implicit in Option Prices", Journal of Business 51(4): 621–651.
  • Rubinstein, M. (1994), "Implied Binomial Trees", Journal of Finance 49(3): 771–818.
  • Bollen, N., Whaley, R. (2004), "Does Net Buying Pressure Affect the Shape of Implied Volatility Functions?", JF 59(2): 711–753.
  • Gârleanu, N., Pedersen, L.H., Poteshman, A. (2009), "Demand-Based Option Pricing", RFS 22(10): 4259–4299.
  • Derman, E. (1999), "Regimes of Volatility", Risk 12(4).
  • Dupire, B. (1994), "Pricing with a Smile", Risk 7(1): 18–20.
  • Heston, S. (1993), "A Closed-Form Solution for Options with Stochastic Volatility", RFS 6(2): 327–343.
  • Barberis, N., Huang, M. (2008), "Stocks as Lotteries", American Economic Review 98(5): 2066–2100.

Lectures and talks

Indian sources for the case studies and rules

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