Product Description

In recent years, interest-rate modeling has developed rapidly in terms of both practice and theory. The academic and practitioners' communities, however, have not always communicated as productively as would have been desirable. As a result, their research programs have often developed with little constructive interference. In this book, Riccardo Rebonato draws on his academic and professional experience, straddling both sides of the divide to bring together and build on what theory and trading have to offer.

Rebonato begins by presenting the conceptual foundations for the application of the LIBOR market model to the pricing of interest-rate derivatives. Next he treats in great detail the calibration of this model to market prices, asking how possible and advisable it is to enforce a simultaneous fitting to several market observables. He does so with an eye not only to mathematical feasibility but also to financial justification, while devoting special scrutiny to the implications of market incompleteness.

Much of the book concerns an original extension of the LIBOR market model, devised to account for implied volatility smiles. This is done by introducing a stochastic-volatility, displaced-diffusion version of the model. The emphasis again is on the financial justification and on the computational feasibility of the proposed solution to the smile problem. This book is must reading for quantitative researchers in financial houses, sophisticated practitioners in the derivatives area, and students of finance.

Product Details

• Amazon Sales Rank: #399874 in Books
• Published on: 2002-11-04
• Original language: English
• Number of items: 1
• Binding: Hardcover
• 480 pages

Review
I thoroughly enjoyed this book. . . . [I]t allowed me to discover a whole new world in a fast and painless fashion. -- Alireza Javaheri, Quantitative Finance

Review
Rebonato's writing style is probably the most elegant I have ever seen in a quantitative finance book. His ideas are conveyed in a brief and clear manner. . . . I thoroughly enjoyed this book since it allowed me to discover a whole new world in a fast and painless fashion. I would therefore recommend it to everyone who has any interest in the fascinating universe of fixed-income derivatives.
(Alireza Javaheri Quantitative Finance )

Review
Dr. Rebonato has blended technical mastery with many years of practical experience to produce what should become the standard handbook for anyone wanting to value, hedge or control the risks of interest rate derivatives.
(Ian Cooper, Professor of Finance, London Business School )

Customer Reviews

rebonato does it again
My avid reading kept jostling out superb hot ideas from this book. Rebonato carries out a comprehensive survey of the LIBOR market model. He tackles historical background, calibration, and effective implementation. The later chapters also cover extensions to the LIBOR market model to take account of smile and skew. In particular, there is extensive discussion of the cutting-edge Joshi-Rebonato stochastic-vol, displaced-diffusion LIBOR market model.

If you are working on the pricing of exotic interest rate derivatives, this book is a must buy.

this is not a book for beginner
I bought this book two years ago and couldn't follow it. After reading other books I found in surprise that I understand what he is talking about now (books not about the same subjects though). The book is well written and I finished the first five chapters. It has many scary formula but the good thing is the author does provide simple examples. It would be even better if he could provide some simple spread sheets for people to play with. I bet he has them. Formula are for mathematicians (I got a master in Math but still I don't feel easy at reading formula. You have to keep one thinking what i is and what k is and they location in the matrix and so on). Well the first 5 chapter is all about covariance matrix and no arbitrage drifts, I bet the later chapters have sophisticated stuff ... it will keep my commute to new york interesting

Such pearls of wisdom
I am not qualified to write a review of this book, but neither is the above author as his "review" is nothing more than an uninformed assault on modern finance.

In fact, I submit, that said reviewer knows nothing of finance whatsoever.

(Since this book happens to be well regarded, I'll give it a five)