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Volatility and Correlation The Perfect Hedger and the Fox (Wiley Finance)
ISBN: 0470091398     Date Published: 2004-09-03     Author(s): Riccardo Rebonato
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Editorial Review - Book 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 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
Customer Review:
Total Reviews: (8)
  (4)      (2)      (2)      (0)      (0)
(3) Shared
9 of 9 People found the following review helpful.

Love this book, October 23, 2009 ByPC (New York, NY United States) - See all my reviews Amazon Verified Purchase(What's this?) This review is from: Volatility and Correlation: The Perfect Hedger and the Fox (The Wiley Finance Series) (Hardcover) I have read this text from cover to cover twice. It is much easier to understand its organization the second time around. The reviewer who complained that it feels disjointed perhaps simply didn't connect with the key messages running through the book. Having assumed (incorrectly) that the intro chapters were a bunch of fluff typical of these texts, I glossed over the intro the first time around. You'll benefit greatly if you scan the book, then go re-read the intro. It's all there put together painstakingly by an author who must have spent an inordinate amount of care and effort trying to make his points clear. Another reviewer complains that it's verbose. Perhaps, but Rebonato really drives his points home by explaining the same thing from multiple angles and repeats himself at just the right points to keep you on the right track. I can see how somebody impatient can get annoyed by it, but if you are willing to invest time and read his prose - especially the intro...
3 of 3 People found the following review helpful.

I would give 5 stars for the first half and about 2 for the back half., December 14, 2010 ByOwen Davey - See all my reviews This review is from: Volatility and Correlation: The Perfect Hedger and the Fox (The Wiley Finance Series) (Hardcover) I read this book over a couple months during my train commute over a year ago when someone lent it to me. I thought the first half was fanstastic as it helped me with some trading insights over and above what I got from typical "quanty" books. It was a great read also for reminding me of some of the material I had studied several years before, but was not using while on a fundamentally driven prop desk focused mostly on cash instead of derivs. I was disappointed when I got to the back half of the book where more of the work on rates was covered. In many instances, interesting topics I was hoping would be covered would merely have results mentioned and the author would cite one of his own papers for the details. I really wanted those details to be in the book (I know - it is 800 pages, so Rebonatao had to pick and choose. However, it seemed like he was far more detailed in the front half, then realized the book was getting too long and left out a lot of details in the...
4 of 6 People found the following review helpful.

Very good but missing little things here and there, February 7, 2007 ByW.D.72 "GWD" (Vienna, AT) - See all my reviews This review is from: Volatility and Correlation: The Perfect Hedger and the Fox (The Wiley Finance Series) (Hardcover) 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.
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