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Volatility and Correlation

Librairie Eyrolles - Paris 5e

Volatility and Correlation

Volatility and Correlation

The Perfect Hedger and the Fox

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


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.


  • 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
Voir tout

Caractéristiques techniques du livre "Volatility and Correlation"

Éditeur(s) Wiley
Auteur(s) Riccardo Rebonato
Parution 06/08/2004
Édition  2eme 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


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