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I am learning option pricing and derivative markets this year in class. I have had some background on stochastic calculus so it was relatively manageable for me to write vanilla and American option pricing. However, it is not so straightforward when following exotic options such as:

  1. volatility swaps and variance swap

  2. Jump diffusion

  3. Numerical methods, such as: Implicit/Explicit Finite-Difference method,

I have written the first and second point in C++, but I am not too sure what's the best or recommended way to write these algorithm.

I would really appreciate if someone could recommend a book or readings that contain at least some pesudo code to solve these problems.

Thank you in advance!

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Jim Gatheral's The Volatility Surface: A Practitioner's Guide is a classic.

Espen Gaarder Haug (the Collector), The Complete Guide to Option Pricing Formulas tells you how to price dozens of exotic options.

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I can think of a number of books that might interest you:

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I would highly recommend Taleb's Dynamic Hedging. It's not for everyone but if advanced option theory is what you are after, it doesn't get any better than this.

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  • $\begingroup$ Certainly that book is advanced (I can't even understand some of it), but it is not oriented towards numerical application and does not contain pseudocode. $\endgroup$ – noob2 Feb 24 at 19:56

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