Volatility and Correlation

The Perfect Hedger and the Fox

Riccardo Rebonato

850 pages, parution le 06/08/2004 (2^eme édition)

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Résumé

The new edition of Volatility and Correlation has been thoroughly updated and expanded with over 80% new or reworked material, reflecting the changes and developments that have taken place in the field. The new and updated material includes: empirical and theoretical analysis of the smile dynamics; examination of the perfect-replication model in relation to exotic options; treatment of additional important models, namely, Variance Gamma, displaced diffusion, CEV, stochastic volatility for interest-rate smiles and equity/FX options; questioning of the informational efficiency of markets in commonly-used calibration and hedging practices. The book is split into four sections. Part I deals with a deterministic-volatility Black world (no smiles), and sets out the author's 'philosophical' approach to option pricing. Part II deals with smiles in the equity and FX worlds. Beginning with a review of relevant empirical information about smiles, this part 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 process-based model, and can directly prescribe the dynamics of the smile surface. Part III focuses on interest rates, and part IV extends the setting used for the deterministic-volatility LIBOR market model in order to account for interest-rate smiles in a financially-motivated and computationally-tractable manner. In this final part the author deals, in increasing levels of complexity, with CEV processes, with diffusive stochastic volatility and with Markov-chain processes. Covering FX, equity and interest-rate products, Volatility and Correlation is a blend of theoretical and practical material and is designed for traders, risk managers, financial professionals and students.

Sommaire

Foundations
- Theory and practice of option modelling
- Option replication
- The building blocks
- Variance and mean reversion in the real and the risk-adjusted worlds
- Instantaneous and terminal correlation
Smiles - equity and FX
- Pricing options in the presence of smiles
- Empirical facts about smiles
- General features of smile-modelling approaches
- The input data : fitting an exogenous smile surface
- Quadratic variation and smiles
- Local-volatility models : the Derman-and-Kani approach
- Extracting the local volatility from option prices
- Stochastic-volatility processes
- Jump-diffusion processes
- Variance-gamma
- Displaced diffusions and generalizations
- No-arbitrage restrictions on the dynamics of smile surfaces
Interest rates - deterministic volatilities
- Mean reversion in interest-rate models
- Volatility and correlation in the LIBOR market model
- Calibration strategies for the LIBOR market model
- Specifying the instantaneous volatility of forward rates
- Specifying the instantaneous correlation among forward rates
- Interest rates - smiles
- How to model interest-rate smiles
- (CEV) processes in the context of the LMM
- Stochastic-volatility extensions of the LMM
- The dynamics of the swaption matrix
- Stochastic-volatility extension of the LMM : two-regime instantaneous volatility

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	PAPIER
Éditeur(s)	Wiley
Auteur(s)	Riccardo Rebonato
Parution	06/08/2004
Édition	2^eme édition
Nb. de pages	850
Format	17 x 25
Couverture	Relié
Poids	1575g
Intérieur	Noir et Blanc
EAN13	9780470091395
ISBN13	978-0-470-09139-5