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The SABR/LIBOR Market Model: Pricing, Calibration and Hedging for Complex Interest-Rate Derivatives
enlarge	Authors: Riccardo Rebonato, Kenneth McKay, Richard White Publisher: Wiley Category: Book List Price: ~~$105.00~~ Buy New: $57.66 as of 7/29/2010 13:47 CDT details You Save: $47.34 (45%) New (24) Used (8) from $57.59 Seller: indoobestsellers Rating: 1 reviews Sales Rank: 135393 Media: Hardcover Pages: 296 Number Of Items: 1 Shipping Weight (lbs): 1.5 Dimensions (in): 9.8 x 6.8 x 0.9 ISBN: 0470740051 Dewey Decimal Number: 332.8015118 EAN: 9780470740057 ASIN: 0470740051 Publication Date: April 27, 2009 Availability: Usually ships in 1-2 business days


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Editorial Reviews: Product Description This book presents a major innovation in the interest rate space. It explains a financially motivated extension of the LIBOR Market model which accurately reproduces the prices for plain vanilla hedging instruments (swaptions and caplets) of all strikes and maturities produced by the SABR model. The authors show how to accurately recover the whole of the SABR smile surface using their extension of the LIBOR market model. This is not just a new model, this is a new way of option pricing that takes into account the need to calibrate as accurately as possible to the plain vanilla reference hedging instruments and the need to obtain prices and hedges in reasonable time whilst reproducing a realistic future evolution of the smile surface. It removes the hard choice between accuracy and time because the framework that the authors provide reproduces today's market prices of plain vanilla options almost exactly and simultaneously gives a reasonable future evolution for the smile surface. The authors take the SABR model as the starting point for their extension of the LMM because it is a good model for European options. The problem, however with SABR is that it treats each European option in isolation and the processes for the various underlyings (forward and swap rates) do not talk to each other so it isn't obvious how to relate these processes into the dynamics of the whole yield curve. With this new model, the authors bring the dynamics of the various forward rates and stochastic volatilities under a single umbrella. To ensure the absence of arbitrage they derive drift adjustments to be applied to both the forward rates and their volatilities. When this is completed, complex derivatives that depend on the joint realisation of all relevant forward rates can now be priced. Contents THE THEORETICAL SET-UP The Libor Market model The SABR Model The LMM-SABR Model IMPLEMENTATION AND CALIBRATION Calibrating the LMM-SABR model to Market Caplet prices Calibrating the LMM/SABR model to Market Swaption Prices Calibrating the Correlation Structure EMPIRICAL EVIDENCE The Empirical problem Estimating the volatility of the forward rates Estimating the correlation structure Estimating the volatility of the volatility HEDGING Hedging the Volatility Structure Hedging the Correlation Structure Hedging in conditions of market stress

Customer Reviews: Lucid thinking about models. Model details of less general interest. November 24, 2009 Un francais en angleterre (Londres, UK) 1 out of 1 found this review helpful Having to deal with Exotic Interest Rates product professionally, I had to get the latest Rebonato's opum. I've found in the past that there is much to be annoyed with this author (he gets fairly deep into the details but not necessarily at the level where you can re-implement things yourself), but also very frequently insights you would not get anywhere else: in the case of this book, the couple of pages where he explains what makes a good model should be mandatory reading for any aspiring "quant" thinking about applying the tools of his trade to the dirty world of finance. This is much better stuff than the more common-place fare he served in his "plight of the fortune tellers". Recommended as such. If you're buying this for the specific model that Rebonato advocates, unless you're very deeply involved in Rates structured products, I don't think you're getting a bargain.