Rebonato Volatility and Correlation

The Perfect Hedger and the Fox
2. Auflage 2005
ISBN: 978-0-470-09140-1
Verlag: John Wiley & Sons
Format: PDF
Kopierschutz: Adobe DRM (»Systemvoraussetzungen)

E-Book, Englisch, 864 Seiten, E-Book

Reihe: Wiley Finance Series

In Volatility and Correlation 2nd edition: ThePerfect Hedger and the Fox, Rebonato looks at derivativespricing from the angle of volatility and correlation. With bothpractical and theoretical applications, this is a thorough updateof the highly successful Volatility & Correlation- with over 80% new or fully reworked material and isa must have both for practitioners and for students.
The new and updated material includes a critical examination ofthe 'perfect-replication' approach to derivativespricing, with special attention given to exotic options; a thoroughanalysis of the role of quadratic variation in derivatives pricingand hedging; a discussion of the informational efficiency ofmarkets in commonly-used calibration and hedging practices.Treatment of new models including Variance Gamma, displaceddiffusion, stochastic volatility for interest-rate smiles andequity/FX options.
The book is split into four parts. Part I deals with a Blackworld without smiles, sets out the author's'philosophical' approach and covers deterministicvolatility. Part II looks at smiles in equity and FX worlds. Itbegins with a review of relevant empirical information aboutsmiles, and provides coverage of local-stochastic-volatility,general-stochastic-volatility, jump-diffusion and Variance-Gammaprocesses. Part II concludes with an important chapter thatdiscusses if and to what extent one can dispense with an explicitspecification of a model, and can directly prescribe the dynamicsof the smile surface.
Part III focusses on interest rates when the volatility isdeterministic. Part IV extends this setting in order to account forsmiles in a financially motivated and computationally tractablemanner. In this final part the author deals with CEV processes,with diffusive stochastic volatility and with Markov-chainprocesses.
Praise for the First Edition:
"In this book, Dr Rebonato brings his penetrating eye tobear on option pricing and hedging.... The book is a must-readfor those who already know the basics of options and are lookingfor an edge in applying the more sophisticated approaches that haverecently been developed."
--Professor Ian Cooper, London Business School
"Volatility and correlation are at the very core of alloption pricing and hedging. In this book, Riccardo Rebonatopresents the subject in his characteristically elegant and simplefashion...A rare combination of intellectual insight andpractical common sense."
--Anthony Neuberger, London Business School

Autoren/Hrsg.

Rebonato, Riccardo

Inhaltsverzeichnis

Preface xxi
0.1 Why a Second Edition? xxi
0.2 What This Book Is Not About xxiii
0.3 Structure of the Book xxiv
0.4 The New Subtitle xxiv
Acknowledgements xxvii
I Foundations 1
1 Theory and Practice of Option Modelling 3
2 Option Replication 31
3 The Building Blocks 75
4 Variance and Mean Reversion in the Real and the Risk-Adjusted Worlds 101
5 Instantaneous and Terminal Correlation 141
II Smiles - Equity and FX 165
6 Pricing Options in the Presence of Smiles 167
7 Empirical Facts About Smiles 201
8 General Features of Smile-Modelling Approaches 237
9 The Input Data: Fitting an Exogenous Smile Surface 249
10 Quadratic Variation and Smiles 293
11 Local-Volatility Models: the Derman-and-Kani Approach 319
12 Extracting the Local Volatility from Option Prices 345
13 Stochastic-Volatility Processes 389
14 Jump-Diffusion Processes 439
15 Variance-Gamma 511
16 Displaced Diffusions and Generalizations 529
17 No-Arbitrage Restrictions on the Dynamics of Smile Surfaces 563
III Interest Rates - Deterministic Volatilities 601
18 Mean Reversion in Interest-Rate Models 603
19 Volatility and Correlation in the LIBOR Market Model 625
20 Calibration Strategies for the LIBOR Market Model 639
21 Specifying the Instantaneous Volatility of Forward Rates 667
22 Specifying the Instantaneous Correlation Among Forward Rates 687
IV Interest Rates - Smiles 701
23 How to Model Interest-Rate Smiles 703
24 (CEV) Processes in the Context of the LMM 729
25 Stochastic-Volatility Extensions of the LMM 751
26 The Dynamics of the Swaption Matrix 765
27 Stochastic-Volatility Extension of the LMM: Two-Regime Instantaneous Volatility 783
Bibliography 805
Index 813

Über Autor(innen)

Riccardo Rebonato is Head of Group Market Risk for the RoyalBank of Scotland Group, and Head of The Royal Bank of ScotlandGroup Quantitative Research Centre. He is also a Visiting Lecturerat Oxford University for the Mathematical Finance Diploma and MSc.He holds Doctorates in Nuclear Engineering and Science ofMaterials/Solid State Physics. He sits on the Board of Directors ofISDA and on the Board of Trustees of GARP.
Prior to joining the Royal Bank of Scotland, he was Head of ComplexDerivatives Trading Europe and Head of Derivatives Research atBarclays Capital (BZW), where he worked for nine years.
Before that he was a Research Fellow in Physics at Corpus ChristiCollege, Oxford, UK. He is the author of three books, ModernPricing of Interest-Rate Derivatives, Volatility andCorrelation in Option Pricing and Interest-Rate OptionModels. He has published several papers on finance in academicjournals, and is on the editorial board of several journals. He isa regular speaker at conferences worldwide.