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11 of 11 people found the following review helpful
5.0 out of 5 stars Love this book
I have read this text from cover to cover twice. It is much easier to understand its organization the second time around. The reviewer who complained that it feels disjointed perhaps simply didn't connect with the key messages running through the book. Having assumed (incorrectly) that the intro chapters were a bunch of fluff typical of these texts, I glossed over the...
Published on October 23, 2009 by PC

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4 of 4 people found the following review helpful
3.0 out of 5 stars I would give 5 stars for the first half and about 2 for the back half.
I read this book over a couple months during my train commute over a year ago when someone lent it to me. I thought the first half was fanstastic as it helped me with some trading insights over and above what I got from typical "quanty" books. It was a great read also for reminding me of some of the material I had studied several years before, but was not using while on...
Published on December 14, 2010 by Owen Davey


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11 of 11 people found the following review helpful
5.0 out of 5 stars Love this book, October 23, 2009
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PC (New York, NY United States) - See all my reviews
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This review is from: Volatility and Correlation: The Perfect Hedger and the Fox (Hardcover)
I have read this text from cover to cover twice. It is much easier to understand its organization the second time around. The reviewer who complained that it feels disjointed perhaps simply didn't connect with the key messages running through the book. Having assumed (incorrectly) that the intro chapters were a bunch of fluff typical of these texts, I glossed over the intro the first time around. You'll benefit greatly if you scan the book, then go re-read the intro. It's all there put together painstakingly by an author who must have spent an inordinate amount of care and effort trying to make his points clear.

Another reviewer complains that it's verbose. Perhaps, but Rebonato really drives his points home by explaining the same thing from multiple angles and repeats himself at just the right points to keep you on the right track. I can see how somebody impatient can get annoyed by it, but if you are willing to invest time and read his prose - especially the intro chapters - carefully, the insight gained is definitely worth it. Not verbose at all in my view. Every paragraph has a purpose if you understand what he's trying to communicate.

It's an advanced text. Don't waste your time if you just learned what a call option it. There are more relevant texts for you out there. You should also have covered basics of stochastic calculus (see Neftci for one). For somebody who has traded vol and wanted to go deeper this book is pure gold. I love it as much as I love Taleb's Dynamic Hedging, albeit Taleb is much less formal and rigorous. What's common betw the two is the depth of original insight relevant to a trader not typically found in the sea of literature on derivs.
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4 of 4 people found the following review helpful
3.0 out of 5 stars I would give 5 stars for the first half and about 2 for the back half., December 14, 2010
This review is from: Volatility and Correlation: The Perfect Hedger and the Fox (Hardcover)
I read this book over a couple months during my train commute over a year ago when someone lent it to me. I thought the first half was fanstastic as it helped me with some trading insights over and above what I got from typical "quanty" books. It was a great read also for reminding me of some of the material I had studied several years before, but was not using while on a fundamentally driven prop desk focused mostly on cash instead of derivs.

I was disappointed when I got to the back half of the book where more of the work on rates was covered. In many instances, interesting topics I was hoping would be covered would merely have results mentioned and the author would cite one of his own papers for the details. I really wanted those details to be in the book (I know - it is 800 pages, so Rebonatao had to pick and choose. However, it seemed like he was far more detailed in the front half, then realized the book was getting too long and left out a lot of details in the back half).

The book was also a bit chatty which I did not mind, but if it could have been condensed a little bit to leave room for those missing details I mention above, then I would have really appreciated it!

I still think the book is well worth buying for the first half though.
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1 of 1 people found the following review helpful
4.0 out of 5 stars A must-have for some, January 18, 2009
This review is from: Volatility and Correlation: The Perfect Hedger and the Fox (Hardcover)
If you are really into exotics, then this book will provide a lot. It is the most extensive book that I know and it is written by a trader for traders. It has some serious weaknesses though: its structure is somewhat chaotic and it seems as if the chapters have just been pasted together from different sources. On top of that, it is somewhat lengthy.

If you want to trade exotics, you have to read it anyway...
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4 of 6 people found the following review helpful
3.0 out of 5 stars Very good but missing little things here and there, February 7, 2007
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This review is from: Volatility and Correlation: The Perfect Hedger and the Fox (Hardcover)
Although the author warns the reader in the Preface, that because he ran out of pages (come on it is more than 800!) he omited dealing with Copulas, it is still a pitty that a book about correlation does not present at least a small chapter on this new (state-of-the-art) area.
Everything else is very good, solid material with a good balance between maths surrounding the topic, explanations and worked out examples.
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3 of 5 people found the following review helpful
5.0 out of 5 stars Excellent, March 17, 2008
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This review is from: Volatility and Correlation: The Perfect Hedger and the Fox (Hardcover)
There are many books on financial modeling currently available and each has a different approach to presenting the subject matter. Some endeavor to present rigorous mathematical formalism and real-world practical examples are kept to a minimum or are completely absent. Others, and there are many of these, only sketch the mathematical details and present many (usually trivial) examples using software tools such as EXCEL or SAS. Then there are those books that attempt to explain in detail the intuition and meaning behind the concepts used in financial modeling, and never tire at giving readers the insight they need in order to become successful financial analysts/modelers. For reasons unknown, these books are rare, but when one comes across them they definitely stand apart from the others in terms of their high didactic quality. Reading these books is sheer pleasure, and no matter how high they are priced their readers are still getting a bargain.

This book is one of these, and readers who want a sound treatment of the mathematical theory of options along with insightful motivations behind this theory should reserve some time to study it. And it is a book that should be read not only by those who want to enter into the field of financial engineering, but also by seasoned professionals who need this kind of insight, if only to be able to better explain the underlying concepts to administrators and managers. It could also be very useful to instructors in the many financial engineering departments throughout the world. Hundreds of millions of dollars are devoted to financial modeling at the present time, and this is only likely to increase in the years to come, despite the pronouncements of some who are skeptical as to its value, pointing to the current strains in the credit markets as proof of its inefficacy.

Some examples of the clarity and insight that the author brings to his writing include the following:
* The discussion of the notion of a risk-neutral measure and the resulting Girsanov's theorem. This is a topic that is usually treated cavalierly in most books on financial modeling, but in this one the author motivates it in the context of the replication of option payoff. The side constraint `the absence of arbitrage' guarantees a unique price for option, and the author begins his motivation by considering the familiar approach via partial differential equations. But after this discussion he believes that arriving at and understanding Girsanov's theorem is best done outside of the continuous time framework, due to the latter's complexity. His ensuing discussion, done in the binomial approximation, proves its didactic power, for the author outlines four different approaches to the evaluation of the fair price of a contingent claim. The fourth one on risk-neutral valuation is the key to his explanation of Girsanov's theorem. Along the way, the Radon-Nikodym derivative appears, and in a way that is much more understandable than merely stating it as a definition, as it typically the case in books on real analysis. In this book it appears when one considers "switching numeraires" and the author does a beautiful job in explaining how this is connected with the equivalence of measures and Girsanov's theorem.
* More precise definitions of terms typically used in discussions on option pricing and general financial engineering and why this precision is necessary when engaging in financial modeling.
* The discussion on the difference between hedging with spot transactions in equity forward contracts versus interest-rate forward contracts. This discussion is generalized from forward contracts to options on equity or FX forwards, and gives insight into the difference between the "Black" world and the "Black-Scholes" world and the complexity of hedging with interest-rate derivatives.
* Detailed discussion and insights into the efficacy of hedging, in both the "real" and "risk-adjusted" contexts.
* The discussion on the Crouhy-Galai argument as to the need for including both the total variance and the instantaneous volatility in obtaining an optimal hedge.

Note: This review is based on a reading of four chapters of the book.
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5.0 out of 5 stars This book plus Shreve is all you need., February 26, 2014
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This review is from: Volatility and Correlation: The Perfect Hedger and the Fox (Hardcover)
Everyone knows that implied volatility is "the wrong number to put in the wrong formula to get the right price", but most books spend little (if any) time discussing the mismatch between model and reality. This work is basically centered on this mismatch and gives it a thorough reasoned treatment. It is truly a book for the practitioner.
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4.0 out of 5 stars Amazing book, June 21, 2008
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This review is from: Volatility and Correlation: The Perfect Hedger and the Fox (Hardcover)
This is an extra-ordinary book by one of the best in the field. Very unique perspective on theory and practice of pricing and hedging. Wish it was bit less verbose though.
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4 of 8 people found the following review helpful
5.0 out of 5 stars very informative and reader friendly, January 9, 2007
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This review is from: Volatility and Correlation: The Perfect Hedger and the Fox (Hardcover)
for the first time I really understood risk neutral probability, explanations are excellent. unfortunately I am only read about 10 chapters int he book, should spend more time with it.
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1 of 5 people found the following review helpful
5.0 out of 5 stars By a professional for professionals. War by other means., April 7, 2010
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This review is from: Volatility and Correlation: The Perfect Hedger and the Fox (Hardcover)
Between major conventional military wars, the economic wars continue.

This is a snapshot of the financial instrument instrument war by a sophisticated player. Escalation in this war is rapid, the book was surely dated before publication, however, considering the massive collateral damage this war is causing, it is a good thing to have a place where non-players can get a glimpse of the process.
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Volatility and Correlation: The Perfect Hedger and the Fox
Volatility and Correlation: The Perfect Hedger and the Fox by Ricardo Rebonato (Hardcover - September 3, 2004)
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