FX Barrier Options: A Comprehensive Guide for Industry Quants

Zareer Dadachanji

Apr 2016 · Springer

About this ebook

Barrier options are a class of highly path-dependent exotic options which present particular challenges to practitioners in all areas of the financial industry. They are traded heavily as stand-alone contracts in the Foreign Exchange (FX) options market, their trading volume being second only to that of vanilla options. The FX options industry has correspondingly shown great innovation in this class of products and in the models that are used to value and risk-manage them. FX structured products commonly include barrier features, and in order to analyse the effects that these features have on the overall structured product, it is essential first to understand how individual barrier options work and behave. FX Barrier Options takes a quantitative approach to barrier options in FX environments. Its primary perspectives are those of quantitative analysts, both in the front office and in control functions. It presents and explains concepts in a highly intuitive manner throughout, to allow quantitatively minded traders, structurers, marketers, salespeople and software engineers to acquire a more rigorous analytical understanding of these products. The book derives, demonstrates and analyses a wide range of models, modelling techniques and numerical algorithms that can be used for constructing valuation models and risk-management methods. Discussions focus on the practical realities of the market and demonstrate the behaviour of models based on real and recent market data across a range of currency pairs. It furthermore offers a clear description of the history and evolution of the different types of barrier options, and elucidates a great deal of industry nomenclature and jargon.

About the author

Zareer Dadachanji is a quantitative analysis consultant with nearly two decades of corporate experience, mostly in financial quantitative modelling across a range of asset classes. He has spent 14 years working as a front-office quant at banks and hedge funds, including NatWest/RBS, Credit Suisse and latterly Standard Chartered Bank, where he held the position of Global Head of FX Quants.

Zareer's specialist areas of expertise are the modelling of FX and equity derivatives. He combines these specialist areas with substantial knowledge of general quantitative modelling, gained through years of senior-level engagement in the activities of global cross-asset quant teams. Zareer is the founder and director of Model Quant Solutions, an independent consultancy providing bespoke quantitative analysis and training on a range of financial subjects. The consultancy serves a variety of clients and client types across the finance industry. Zareer holds a triple first in Natural Sciences and a PhD in Computational and Theoretical Physics, both from the University of Cambridge.