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

It was worth buying and reading. You should be able to achieve your goals and target your objectives properly with this book.

It's hard to believe a reviewer with such a myopic view of Derivatives pricing could go through the whole book, understood it and found time to rate it. Mindblowing waste of time !
Few hundreds years ago, he would have recommended burning the Madmen claiming the earth was round.

Anyway, while Derivatives Pricing achieves little for the welfare of mankind, the recent need for assets based on ever complex market scenarios calls for a more refined pricing methodology. There no supply and demand here, only customers who want hedge/trade/tradge assets /liabilities and traders who need to make sure their firms don't go burst when market move.

The author answers that demand by formatting and publishing his papers.

I'm an interest rate professional with more than 10 years of successful pricing and trading experience, and I enjoyed and appreciated Riccardo Rebonato's clear presentation of the pricing of these derivatives. I keep this on my desk as one of my key references.

Another great read is "Credit Derivatives" (2nd Edition) by Tavakoli. The products and their uses are clearly explained, and ties in relative value to the interest rate market. I concede that the models for this product may be trickier because of documentation risk and data issues, but Tavakoli brings clarity to this topic so any interest rate professional can grasp the products and why investors - even hedge funds - are so keen to use them.

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.

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)

A complicated body of mathematical theory, developed over a period of about 30 years, addresses the question: how should derivative X be valued if we know certain parameters, especially the volatility of the price of its underlying asset?

But why exactly does the question need answering? After all, the price of X, like that of its underlying, is determined by the point at which the demand for X is equal to the supply of X. One doesn't need a computer for that, one just needs a liquid marketplace. I can look up the price of a share of Microsoft's equity in my daily newspaper. I'm not tempted to develop a body of theory to figure it out, when I can flip through a few pages and find it.

Nowadays, I can also look up the price of a standardized option to buy Microsoft in the newspaper. In 1973, when people like Fischer Black began developing this body of theory, that was not yet the case.

This brings us to the point of my little sermon. The purpose of this body of theory is to produce a price figure in cases where there is not a liquid market for X. The theories answer the question a portfolio manager must often ask himself: if I were able to find a buyer for X, how much could I charge for it?

This book has its moments, but in general I believe this body of theory accomplishes less than its adepts believe. The imagery of a God-like Newton on the dust jacket indicates, I submit, some of the pretentiousness that gets into their ivory towers.