3 comments about Volatility and Correlation: In the Pricing of Equity, FX and Interest-Rate Options (Wiley Series in Financial Engineering).

1. Overall, I found this book interesting. There is nothing really new or unknown to quants or researchers working in this field but much of the material has actually not been written down in any other book, which makes this book useful.

   There are some important points about hedging and pricing derivatives in a non Black Scholes world which are important but are nowhere to be seen in any textbook on options and/or mathematical finance. The author correctly stresses the distinction between real-world and implied statistical quantities.

   Also, he gives a lot of common sense comments on questions like hedging with smiles, which are very helpful. Topics like changes of numeraire which are exposed in notoriously obscure ways in many mathematical finance textbooks are explained in simple terms with EXAMPLES. Examples illustrate eveyr point and this is perhaps what is lacking in other textbooks. I appreciated this a lot. Mathematical rigor is not the strong point of this book but I think it is an advantage rather than a drawback: it allows the reader to focus on important points which are not the mathematical ones in fact. However, there are some mistakes in the text from time to time.

   However, there is something I feel very unconfortable with: the author does not mention/cite other peoples work in this field and seems to attribute to himself most of the results explained in the book. Anybody who has been working in the field in the last decade can easily associate lots of names with each of the points raised in the book but these names are nowhere to be seen. Does the author have a very limited view of the literature or is he deliberately not mentioning other peoples work? Perhaps a mixture of both.




2. This book brings together many of the recent publications concerning the volatility surface. The work is interesting and points out many of the well known problems with pricing options in a non Black Scholes world. As is often the case with financial literature, it is more interesting from an academic perspective than from a practical one.



3. The Black-Scholes model for pricing FX and equity options has become ubiquitous. However, it is always used with a pinch of salt. In particular, traders typically use different volatilities when pricing options with different strikes, a practice which makes no sense in the context of the model, but is a very effective way of compensating for its deficiencies. This is known as the smile effect from the shape of the volatility graph.

   Rebonato's new book sets out to examine these deficiencies and presents various alternative models. For each model, he examines the validity of its assumptions and predictions, convincingly demonstrating that fear of jumps is a major cause of smiles.

   The other major theme of the book is that volatility and correlation are quite different objects for interest rate derivatives than for FX and equity options. In the context of BGM models, he shows that the shape of the volatility function of forward rates is the major cause of decorrelation, rather than actual instantaneously uncorrelated movements.

   This book is not a first book on mathematical finance but it is accessible and is a must read for anyone involved in the pricing of derivative products.

No comments about The Investor's Guide to Stock Quotations and Other Financial Listings.

No comments about Stock Index Options and Futures.

No comments about The Interactive Guide to Options.

No comments about Dynamic market entry and the value of flexibility in transitional international joint ventures [An article from: Review of Financial Economics].

No comments about Selected Issues in Equity Compensation, 2nd Ed..

No comments about Beyond Stock Options - Phantom Stock, Restricted Stock, Stock Appreciation Rights, and Other Equity Alternatives - 4th Edition -.

No comments about Futures & Options: Strategy Guide.

3 comments about Trade the Oex: Cut Risk Not Profit.

1. On reading further -- each chapter has been exended to include later trades (1990 - 93) and some strategic changes to the approaches are suggested. The book is interesting reading, some of the comments are good (amusing) but not always helpful in trading. The discussion of SP500 futures should deter many a would-be trader, I would think.



2. If you have a copy of "Taking Profit from the OEX" by Arthur Darack then just re-read it. This book, supposedly published in 1995, is just a re-hash of the previous book. Even the chapter headings have the same name, and the same content. If nothing has changed since the first one (198?) then why change the title. Stan Graham



3. After reading this book on trading the OEX, I had a better insight as to how this instrument works. Personally, I'm still considering whether or not I should start trading the OEX. This book helped me a lot in my decision. If you have any interest in OEX trading, you should start by readin this book.

No comments about Currency Options (Currency Risk Management Series).