Volatility and Correlation: The Perfect Hedger and the Fox (Wiley Finance)

Book Description

In Volatility and Correlation 2 ^nd edition: The Perfect Hedger and the Fox, Rebonato looks at derivatives pricing from the angle of volatility and correlation. With both practical and theoretical applications, this is a thorough update of the highly successful Volatility & Correlation – with over 80ew or fully reworked material and is a must have both for practitioners and for students.

The new and updated material includes a critical examination of the ‘perfect-replication’ approach to derivatives pricing, with special attention given to exotic options; a thorough analysis of the role of quadratic variation in derivatives pricing and hedging; a discussion of the informational efficiency of markets in commonly-used calibration and hedging practices. Treatment of new models including Variance Gamma, displaced diffusion, stochastic volatility for interest-rate smiles and equity/FX options.

The book is split into four parts. Part I deals with a Black world without smiles, sets out the author’s ‘philosophical’ approach and covers deterministic volatility. Part II looks at smiles in equity and FX worlds. It begins with a review of relevant empirical information about smiles, and provides coverage of local-stochastic-volatility, general-stochastic-volatility, jump-diffusion and Variance-Gamma processes. Part II concludes with an important chapter that discusses if and to what extent one can dispense with an explicit specification of a model, and can directly prescribe the dynamics of the smile surface.

Part III focusses on interest rates when the volatility is deterministic. Part IV extends this setting in order to account for smiles in a financially motivated and computationally tractable manner. In this final part the author deals with CEV processes, with diffusive stochastic volatility and with Markov-chain processes.

Praise for the First Edition:

“In this book, Dr Rebonato brings his penetrating eye to bear on option pricing and hedging.… The book is a must-read for those who already know the basics of options and are looking for an edge in applying the more sophisticated approaches that have recently been developed.”
—Professor Ian Cooper, London Business School

“Volatility and correlation are at the very core of all option pricing and hedging. In this book, Riccardo Rebonato presents the subject in his characteristically elegant and simple fashion…A rare combination of intellectual insight and practical common sense.”
—Anthony Neuberger, London Business School

Download Description

In Volatility and Correlation 2nd edition: The Perfect Hedger and the Fox, Rebonato looks at derivatives pricing from the angle of volatility and correlation. With both practical and theoretical applications, this is a thorough update of the highly successful Volatility & Correlation with over 80% new or fully reworked material and is a must have both for practitioners and for students. The new and updated material includes a critical examination of the perfect-replication approach to derivatives pricing, with special attention given to exotic options; a thorough analysis of the role of quadratic variation in derivatives pricing and hedging; a discussion of the informational efficiency of markets in commonly-used calibration and hedging practices. Treatment of new models including Variance Gamma, displaced diffusion, stochastic volatility for interest-rate smiles and equity/FX options. The book is split into four parts. Part I deals with a Black world without smiles, sets out the author's philosophical approach and covers deterministic volatility. Part II looks at smiles in equity and FX worlds. It begins with a review of relevant empirical information about smiles, and provides coverage of local-stochastic-volatility, general-stochastic-volatility, jump-diffusion and Variance-Gamma processes. Part II concludes with an important chapter that discusses if and to what extent one can dispense with an explicit specification of a model, and can directly prescribe the dynamics of the smile surface. Part III focusses on interest rates when the volatility is deterministic. Part IV extends this setting in order to account for smiles in a financially motivated and computationally tractable manner. In this final part the author deals with CEV processes, with diffusive stochastic volatility and with Markov-chain processes.

Customer Reviews:

Very good but missing little things here and there.......2007-02-08

Although the author warns the reader in the Preface, that because he ran out of pages (come on it is more than 800!) he omited dealing with Copulas, it is still a pitty that a book about correlation does not present at least a small chapter on this new (state-of-the-art) area.
Everything else is very good, solid material with a good balance between maths surrounding the topic, explanations and worked out examples.

very informative and reader friendly.......2007-01-09

for the first time I really understood risk neutral probability, explanations are excellent. unfortunately I am only read about 10 chapters int he book, should spend more time with it.

Managing Risk in the Foreign Exchange, Money and Derivative Markets

Average customer rating:

Managing Risk in the Foreign Exchange, Money and Derivative Markets
Heinz Riehl
Manufacturer: McGraw-Hill
ProductGroup: Book
Binding: Hardcover

General | Popular Economics | Business & Investing | Subjects | Books

International | Economics | Business & Investing | Subjects | Books

Money & Monetary Policy | Economics | Business & Investing | Subjects | Books

Foreign Exchange | Finance | Business & Investing | Subjects | Books

General | Business & Investing | Subjects | Books

General | International | Business & Investing | Subjects | Books

Futures | Investing | Business & Investing | Subjects | Books

General | Investing | Business & Investing | Subjects | Books

Options | Investing | Business & Investing | Subjects | Books

All Titles | Qualifying Textbooks - Fall 2007 | Stores | Books

Business & Investing | Qualifying Textbooks - Fall 2007 | Stores | Books

Professional | Qualifying Textbooks - Fall 2007 | Stores | Books
ASIN: 0070526737

Book Description

A professional's guide to controlling risk when investing in the foreign exchange and money markets. Particular emphasis on the use of derivatives. The book offers a unique perspective combining coverage of all three areas.

Volatility and Correlation: In the Pricing of Equity, FX and Interest-Rate Options (Wiley Series in Financial Engineering)

Average customer rating:

A useful book with lots of examples.
Fine, but nothing particularly new or conclusive.
a must read for anyone involved in derivative pricing

Volatility and Correlation: In the Pricing of Equity, FX and Interest-Rate Options (Wiley Series in Financial Engineering)
Riccardo Rebonato
Manufacturer: John Wiley & Sons
ProductGroup: Book
Binding: Hardcover

General | Popular Economics | Business & Investing | Subjects | Books

General | Business & Investing | Subjects | Books

Futures | Investing | Business & Investing | Subjects | Books

Options | Investing | Business & Investing | Subjects | Books

General | Business & Finance | New & Used Textbooks | Stores | Books

Book Description

"What is at stake is not some obscure academic point, but lies at the very heart of option pricing, and will inform the users' decisions insofar as their choice of pricing model is concerned." From the Introduction In his new book, Riccardo Rebonato introduces financial professionals to the practical and subtle use of the concepts of volatility (the degree of randomness in a price movement) and correlation (the relationship between the changes in value of two financial assets) in the pricing of complex options. By explaining this approach in clear and accessible terms, the author provides traders, risk managers, financial professionals and students with the tools to undertake an effective investigation of option pricing models both at the qualitative and the quantitative level. "In this book Dr Rebonato brings his penetrating eye to bear on option pricing and hedging. In his usual intuitive style he critically examines a variety of approaches to equity, currency and interest-rate options. The book is full of practical insights that reflect a wealth of experience in applying these models. The book is a `must read' for those who already know the basics of options and are looking for an edge in applying the more sophisticated approaches that have recently been developed." Professor Ian Cooper, London Business School "This book is a blend of the theoretical, the practical, and the abstract, but always staying in contact with reality. I don't agree with everything in it, but it taught me a thing or two. Read it carefully and thoroughly." Paul Wilmott, author of Derivatives "Volatility and correlation are at the very core of all option pricing and hedging. In this book, Riccardo Rebonato presents the subject in his characteristically elegant and simple fashion. He rightly emphasises the financial and economic assumptions which underpin the models, and gives salutary warnings against models which overfit the current structure of prices but which perform poorly in predicting future behaviour. A rare combination of intellectual insight and practical common sense." Anthony Neuberger, Associate Professor, Institute of Finance and Accounting, London Business School

Customer Reviews:

A useful book with lots of examples........2000-07-18

Overall, I found this book interesting. There is nothing really new or unknown to quants or researchers working in this field but much of the material has actually not been written down in any other book, which makes this book useful.

There are some important points about hedging and pricing derivatives in a non Black Scholes world which are important but are nowhere to be seen in any textbook on options and/or mathematical finance. The author correctly stresses the distinction between real-world and implied statistical quantities.

Also, he gives a lot of common sense comments on questions like hedging with smiles, which are very helpful. Topics like changes of numeraire which are exposed in notoriously obscure ways in many mathematical finance textbooks are explained in simple terms with EXAMPLES. Examples illustrate eveyr point and this is perhaps what is lacking in other textbooks. I appreciated this a lot. Mathematical rigor is not the strong point of this book but I think it is an advantage rather than a drawback: it allows the reader to focus on important points which are not the mathematical ones in fact. However, there are some mistakes in the text from time to time.

However, there is something I feel very unconfortable with: the author does not mention/cite other peoples work in this field and seems to attribute to himself most of the results explained in the book. Anybody who has been working in the field in the last decade can easily associate lots of names with each of the points raised in the book but these names are nowhere to be seen. Does the author have a very limited view of the literature or is he deliberately not mentioning other peoples work? Perhaps a mixture of both.

Fine, but nothing particularly new or conclusive........2000-03-15

This book brings together many of the recent publications concerning the volatility surface. The work is interesting and points out many of the well known problems with pricing options in a non Black Scholes world. As is often the case with financial literature, it is more interesting from an academic perspective than from a practical one.

a must read for anyone involved in derivative pricing.......2000-01-04

The Black-Scholes model for pricing FX and equity options has become ubiquitous. However, it is always used with a pinch of salt. In particular, traders typically use different volatilities when pricing options with different strikes, a practice which makes no sense in the context of the model, but is a very effective way of compensating for its deficiencies. This is known as the smile effect from the shape of the volatility graph.

Rebonato's new book sets out to examine these deficiencies and presents various alternative models. For each model, he examines the validity of its assumptions and predictions, convincingly demonstrating that fear of jumps is a major cause of smiles.

The other major theme of the book is that volatility and correlation are quite different objects for interest rate derivatives than for FX and equity options. In the context of BGM models, he shows that the shape of the volatility function of forward rates is the major cause of decorrelation, rather than actual instantaneously uncorrelated movements.

Book Description

Arditti describes and explains four major classes of derivative instruments: options, futures, interest rate swaps, and mortgage derivatives. He discusses each market's structure and the applications and pricing of each instrument, focusing on the valuation methods that are most commonly used by professional market participants. Each segment begins with a description of the institutional arrangements that have come to characterize the markets in which the instruments trade. Arditti examines basic derivatives in each class with respect to their risk transference properties, risk management applications, and pricing. He then traces the evolution of these markets in terms of new instruments introduced, the factors inspiring their development, and the alterations in pricing technology required by more complex derivatives. Arditti includes numerical examples to clarify the procedures. The Financial Management Association Survey and Synthesis Series.

Customer Reviews:

Very good Book for a practitioner.......2005-12-09

I found the book very useful in practice. It gave you a lot of details.

Very poorly written.......2004-02-13

I found Arditti's writing to be simply attrocious. What the marketplace needs is a clear, concise guide to instrument structure and valuation, and Mr. Arditti writes in circles. As an example, his chapter on option pricing refers to "using the methods used previously in this chapter" without referring to how to apply these to the method just introduced. The method just introduced was explained using numbers that were presumably fabricated, but lord only knows, because the author can't be bothered to specify how his example was structured.

In trying to explain things simply, the author fails to explain anything clearly. "Derivatives" is an extreme disappointment. As a reference, this book may have some use, but if you're looking to learn something from it, stear clear.

He knows how to design derivatives and make them work.......2003-07-28

I am completely satisfied with this book. He knows how to design derivatives and make them work. This book does a remarkable job of explaining the theory and practice of derivative securities.

EXCELLENT AND IN PATCHES OUTSTANDING.......2000-08-09

This book is an excellent resource for beginning and intermediate level fund managers who want to understand the derivatives to be able to use them in risk hedging and income maximization.

The book is excellently organized in four sections and each section is self sufficient. Each of the sections begin with basics, illustrates the concepts with example, introduces the mathematics of pricing and methodology of hedginag of risks

Every section has also a nice subsection on terminology and definitions.

The book is an excellent attempt to explain a highly technical and complex subject.The section on Interest Rate swaps is outstanding. A must read for all corporate money managers and a must addition to all financial libraries.

Average customer rating:

Amazingly Informative!

Financial Futures and Options: Managing Risk in the Interest Rate, Currency and Equity Markets (An Institutional Investor Publication)
Ira G. Kawaller
Manufacturer: Probus Professional Pub
ProductGroup: Book
Binding: Hardcover

General | Popular Economics | Business & Investing | Subjects | Books
General | Business & Investing | Subjects | Books
Futures | Investing | Business & Investing | Subjects | Books
Options | Investing | Business & Investing | Subjects | Books
ASIN: 1557382948

Customer Reviews:

Amazingly Informative!.......1998-08-24

In his book, Mr. Ira Kawaller covers an amazing range of topics from risk managemant to stock options. I have never read a book so incredibly exciting in all of my life. Mr. Kawaller knows how to display the facts, provide informative facts, and decorate it all with a wit and charm that thrives in his book. "Financial Futures and Options" is THE book for risk management lovers everywhere. This book inspired me to change my career choices. After reading "Futures" (in one sitting!) I knew that prostitution and drug dealing was just not for me. I am now an economist making over $600,000 a year and loving it. Thank you, Mr. Kawaller. You turned my life around. (From what everyone is saying, I believe Mr. Kawaller now runs his own business called Kawaller & Company in Brooklyn, NY. If you ever need help financially, Mr. Kawaller will personally see to it that you get back on track. After all, risk can be managed if it is faced in a disciplined way. Ignore it and you face disaster. E-mail Kawaller and Company at kawaller@idt.net and good luck!)

Interest-Rate Option Models: Understanding, Analysing, and Using Models for Exotic Interest-Rate Options (Wiley Series in Financial Engineering)

Average customer rating:

Good but a little bit superficial
Good starting point
Great for intuitive understanding
Most comprehensive book wirtten on this topic
Good on Several Levels

Interest-Rate Option Models: Understanding, Analysing, and Using Models for Exotic Interest-Rate Options (Wiley Series in Financial Engineering)
Riccardo Rebonato , and Ricardo Rebonato
Manufacturer: John Wiley & Sons
ProductGroup: Book
Binding: Hardcover

General | Popular Economics | Business & Investing | Subjects | Books

Money & Monetary Policy | Economics | Business & Investing | Subjects | Books

Public Finance | Economics | Business & Investing | Subjects | Books

General | Business & Investing | Subjects | Books

Banks & Banking | Industries & Professions | Business & Investing | Subjects | Books

Futures | Investing | Business & Investing | Subjects | Books

General | Investing | Business & Investing | Subjects | Books

Options | Investing | Business & Investing | Subjects | Books
ASIN: 0471965693

Book Description

The modelling of exotic interest-rate options is such an important and fast-moving area, that the updating of the extremely successful first edition has been eagerly awaited. This edition re-focuses the assessment of various models presented in the first edition, in light of the new developments of modelling imperfect correlation between financial quantities. It also presents a substantial new chapter devoted to this revolutionary modelling method. In this second edition, readers will also find important new data dealing with the securities market and the probabilistic/stochastic calculus tools. Other changes include: a new chapter on the issues arising in the pricing of several classes of exotic interest-rate instruments; and insights from the BDT and the Brennan and Schwartz approaches which can be combined into a new class of "generalised models". Further details can be found on the links between mean-reversion and calibration for the important classes of models.

Dr Riccardo Rebonato is Director and Head of Research at Barclays Capital. He is responsible for the modelling, trading and risk management of the European exotic interest-rate products. He holds Doctorates in Nuclear Engineering and Science of Materials/Solid State Physics. Before moving into investment banking he was Research Fellow in Physics at Corpus Christi College (Oxford). He has published papers in several academic journals in finance, and is a regular speaker at conferences worldwide.

Customer Reviews:

Good but a little bit superficial.......2007-09-18

This is an excellent reference guide to interest rate option models, I used it extensively with Implementing Derivative Models (Wiley Series in Financial Engineering)while I was writing my masters thesis. Although it is a good reference, it lacks deep demonstration of how the equations are derived, throwing a lot of them assuming that the reader is an expert on the field. So in some models the book tends to be too superficial, but as I said it is an excellent reference of IR Option Models.

Good starting point.......2005-09-24

It's a recommended reading for our finance/numerical mth course. I have not got a chance to read through the whole book, but looks to be a good starting point for the subject matter.

Great for intuitive understanding.......2003-04-20

The book places more emphasis on an intuitive grasp of the complex mathematics involved, though this must mean giving up rigour to an extent.

Most comprehensive book wirtten on this topic.......2001-11-06

It is really a pleasure to read this book. While covering the most important topics it remains focused on the essentials. Whenever you have to deal with a concept in the literature about fixed income instruments you are not aware off Rebonato is always a good reference to start with, similar to Hull's or Wilmott's book.

Rebonato addresses consequently practical implementation issues (although not coevering the technical details of the implementation algorithms - read the original papers for that!) that are frequently missing in so many academic publications. This makes it to one of my favorit books on my book shelf. I am looking forward to his next book on intrest rate derivatives.

Good on Several Levels.......2001-07-11

Rebonato covers the material on different levels, providing not only full mathematical formulations, but also the English version of the math along with explanations of significance of the topics covered. This book is excellent for those with the mathematical background to understand the math, and is easy to follow for those with less than rigorous mathematical background. I would recommend a good foundation in general option pricing (at least an introduction to Black-Scholes and lattice modeling) prior to reading this book. Futures, Options, and Swaps by Kolb and Options, Futures, and Other Derivatives by Hull would be good preliminary readings. Rebonato does a good job in discussing the various modeling techniques, along with the strengths and weaknesses of each.

Currency and Interest Rate Hedging: A User's Guide to Options, Futures, Swaps, and Forward Contracts (New York Institute of Finance, Second Edition)

Average customer rating:

excellent non-mathematical primer
perfect for practical use

Currency and Interest Rate Hedging: A User's Guide to Options, Futures, Swaps, and Forward Contracts (New York Institute of Finance, Second Edition)
Torben Juul Andersen
Manufacturer: New York Institute of Finance
ProductGroup: Book
Binding: Hardcover

General | Popular Economics | Business & Investing | Subjects | Books

Money & Monetary Policy | Economics | Business & Investing | Subjects | Books

Public Finance | Economics | Business & Investing | Subjects | Books

General | Business & Investing | Subjects | Books

Futures | Investing | Business & Investing | Subjects | Books

Options | Investing | Business & Investing | Subjects | Books
ASIN: 0132261014

Customer Reviews:

excellent non-mathematical primer.......2003-09-21

I work in the securities industry, and this book accurately described the markets and products without the detailed mathematics. I would recommend this book as a first reading before the Hull and White book which is much more mathematical.

Too bad it's out of print. I'd like everyone in my group to have a copy.

perfect for practical use.......2000-08-17

I consider the book a perfect guide written by a professional for professionals. If you are looking for scientific completeness and complication, go somewhere else. If you are looking for a competent down-to-earth reference, this is your book. I wonder when the third edition of this valuable tool will be published.

Options: A Comprehensive Guide for Options on Stocks, Stock Indexes, Futures Contracts, Interest Rates, Foreign Currencies

Average customer rating:

Options: A Comprehensive Guide for Options on Stocks, Stock Indexes, Futures Contracts, Interest Rates, Foreign Currencies
Martin Torosian
Manufacturer: Martin Torosian
ProductGroup: Book
Binding: Hardcover

Public Finance | Economics | Business & Investing | Subjects | Books
ASIN: 0960359214

Advanced Strategies in Financial Risk Management (New York Institute of Finance)

Average customer rating:

Advanced Strategies in Financial Risk Management (New York Institute of Finance)
Robert J. Schwartz
Manufacturer: New York Institute of Finance
ProductGroup: Book
Binding: Textbook Binding

Public Finance | Economics | Business & Investing | Subjects | Books

Corporate Finance | Finance | Business & Investing | Subjects | Books

General | Business & Investing | Subjects | Books

Futures | Investing | Business & Investing | Subjects | Books

Options | Investing | Business & Investing | Subjects | Books

Decision-Making & Problem Solving | Management & Leadership | Business & Investing | Subjects | Books

General | Business & Finance | New & Used Textbooks | Stores | Books

Handbook of Currency and Interest Rate Risk Management

Average customer rating:

Handbook of Currency and Interest Rate Risk Management
Robert Schwartz , and Clifford W. Smith
Manufacturer: Prentice Hall Trade
ProductGroup: Book
Binding: Hardcover

General | Popular Economics | Business & Investing | Subjects | Books

Public Finance | Economics | Business & Investing | Subjects | Books

General | Business & Investing | Subjects | Books

Futures | Investing | Business & Investing | Subjects | Books

Options | Investing | Business & Investing | Subjects | Books

Books:

Books Index

Books Home

Recommended Books