Books for Learning Option Pricing and Quantitative Finance

# A good book on option pricing from theoretical and practical aspect


# A good book on option pricing from theoretical and practical aspect












This is the situation someone I know is in:

She has good understandings of stochastic calculus and the very basics about Black-Scholes and binomial model, but nothing more.

Her background is in statistics and she has a lot of experiences in time series modelling.

What would be good books to look at for a job as a quant in a fund or an investment bank?

I think the section in 'Heard on the street' is a nice for interviewing but it is written more like a 'crash course' for interview rather than a proper financial mathematical treatise.

(Though this may be off topic: some general advice is also nice, but I am mainly looking for a book)

## Answer by KT8 (score 7, accepted)

https://quant.stackexchange.com/a/78163

My recommendations would be the following:

For starters in Quantitative Finance:

- Hull - Options futures and other derivatives

- Wilmott - Quantitative Finance

For an introduction to volatility:

- Derman, Miller and Par - The volatility smile

- Jim Gatheral - The volatility surface

For stochastic calculus:

- Shreve - Stochastic calculus for finance I and II (I'd focus more on the second part).

For interest rates:

- Brigo, Mercurio - Interest Rate Models - Theory and Practice

For Foreign exchange:

- Wystup, U. - FX Options and structured products

For trading derivatives (specially equity):

- Sinclair, Euan - Volatility Trading (nicely pointed out by Brian B)

- Natenberg, Sheldon - Option Pricing And Volatility - Advanced Strategies And Trading Techniques

## Answer by Malick (score 4)

https://quant.stackexchange.com/a/10003

I would recommmend her An introduction to the mathematics of financial derivatives by Neftci and some programming books(Numerical Recipes. The Art of Scientific Computing by william H press, C++ Design Patterns and Derivatives Pricing by Joshi).

## Answer by Kai (score 4)

https://quant.stackexchange.com/a/78167

Here is some interesting things to consider, beyond the typical bibles like Hull and Wilmott etc.

For either route (buy/sell side), in terms of math, I think strong stochastic process would be great (depending on how strong her stoch cal is). Something you can consider:

- https://www.math.uchicago.edu/~lawler/probnotes.pdf (Introductory probability and stochastic processes by Prof Lawler from UChicago. VERY well written and concise and contains probably most of what you will be interviewed on)

- https://www.math.uchicago.edu/~lawler/finbook.pdf (Further treatise by Lawler on actual Stoch Calc applied with a flow eventually applied to Finance. Once again a good flow of material. It is a follow up to the above)

For a quant in an investment bank, I think it depends on what you are looking for. For what I would say is a really up to date version of sell-side derivatives in general, that is highly intuitive but still somewhat mathematical, you can see this website: https://bookdown.org/maxime_debellefroid/MyBook/

Maxime did a really good job decomposing options, especially in the exotics/structures space without making it too unyieldingly academic.

If you are heading to the buy-side, especially quant trading firms, per my understanding they mainly look at material from the generic sources which I think is mostly covered in Sheldon Natenburg's Option Volatility and Pricing: Advanced Trading Strategies and Techniques (though this might be more basic than you are looking for, mastering this I think is quite imperative).

## Answer by 0alessandrocicalese0 (score 2)

https://quant.stackexchange.com/a/76454

My recommendation are the books "Stochastic Calculus for Finance II: Continuous-Time Models" by Shreve or "Arbitrage Theory in Continuous Time" by Björk.

## Answer by AlRacoon (score 2)

https://quant.stackexchange.com/a/78162

Hull's Options, Futures, and Other Derivatives.

## Answer by Brian B (score 1)

https://quant.stackexchange.com/a/78165

I have upvoted @KTB for an excellent list. There's one more that I would have placed at the very top of the list:

- Volatility Trading by Euan Sinclair

## Answer by Lost1 (score 0)

https://quant.stackexchange.com/a/78350

Now having worked some years in this sector, I would add Lorenzo Bergomi's "Stochastic Volatility Models". This is a must read for people working in equities and contains many of the actual models used at SocGen, which is one of the best banks in term of stochastics modelling.

## Answer by Raskolnikov (score 0)

https://quant.stackexchange.com/a/78355

The Greeks and Hedging explained by Peter Leoni is trying to bridge the gap between theory and practice. As the title indicates, it focuses on how traders hedge their books with the tools available, mainly the Black-Scholes model. It is light on math, strong on intuition building.