The Trading Process.

Chapter 1. Option Pricing.

The Black-Scholes-Merton Model.

Summary.

Chapter 2. Volatility Measurement and Forecasting.

Defining and Measuring Volatility.

Definition of Volatility.

Alternative Volatility Estimators.

Using Higher-Frequency Data.

Forecasting Volatility.

Forecasting the Volatility Distribution.

Summary.

Chapter 3. Implied Volatility Dynamics.

Volatility Level Dynamics.

Smile Dynamics.

Summary.

Chapter 4. Hedging.

Ad Hoc Hedging Methods.

Utility Based Methods.

Estimation of Transaction Costs.

Aggregation of Options on Different Underlyings.

Summary.

Chapter 5. Hedged Option Positions.

Discrete Hedging and Path Dependency.

Volatility Dependency.

Summary.

Chapter 6. Money Management.

Ad Hoc Schemes.

The Kelly Criterion.

Alternatives to the Kelly Criterion.

Trade Sizing in a Continuously Changing Setting.

Summary.

Chapter 7. Trade Evaluation.

General Planning Procedures.

Risk-Adjusted Performance Measures.

Setting Goals.

Persistence of Performance.

Summary.

Chapter 8. Psychology.

Self-Attribution Bias.

Overconfidence.

The Availability Heuristic.

Short-Term Thinking.

Loss Aversion.

Conservatism and Representativeness.

Confirmation Bias.

Hindsight Bias.

Anchoring and Adjustment.

Summary.

Chapter 9. Life Cycle of a Trade.

Pretrade Analysis.

Post-Trade Analysis.

Summary.

Chapter 10. Conclusion.

Execution Ability.

Concentration.

Product Selection.

Appendix A. Model-Free Implied Variance and Volatility.

The VIX Index.

Appendix B. Spreadsheet Instructions.

GARCH.

Volatility Cones and Skew and Kurtosis Cones.

Daily Option Hedging Simulation.

Trade Evaluation.

Trading Goals.

Corrado-Su Skew Curve.

Mean Reversion Simulator.

Resources.

Essential Books.

Thought-Provoking Books.

Useful Web Sites.

References.

About the CD-ROM.

Index.