Interest-Rate Option Models: Understanding, Analysing and Using Models for Exotic Interest-Rate Options (Wiley Series in Financial Engineering)

It is really a pleasure to read this book. While covering the most important topics it remains focused on the essentials. Whenever you have to deal with a concept in the literature about fixed income instruments you are not aware off Rebonato is always a good reference to start with, similar to Hull's or Wilmott's book.Rebonato addresses consequently practical implementation issues (although not coevering the technical details of the implementation algorithms - read the original papers for that!) that are frequently missing in so many academic publications. This makes it to one of my favorit books on my book shelf. I am looking forward to his next book on intrest rate derivatives.

Rebonato covers the material on different levels, providing not only full mathematical formulations, but also the English version of the math along with explanations of significance of the topics covered. This book is excellent for those with the mathematical background to understand the math, and is easy to follow for those with less than rigorous mathematical background. I would recommend a good foundation in general option pricing (at least an introduction to Black-Scholes and lattice modeling) prior to reading this book. Futures, Options, and Swaps by Kolb and Options, Futures, and Other Derivatives by Hull would be good preliminary readings. Rebonato does a good job in discussing the various modeling techniques, along with the strengths and weaknesses of each.

This book is as one reviewer said, is both practical and a reference. It brings to light concepts such as, why Swap rates and Forward rates canot follow a log normal process at the same time in a intutive and practical way. The derivation of the different model is not rigorous enough but one could obtain it from other books. On the whole a good buy but a little bit expensive.

By restricting attention to interest-rate option models only, the author manages to give a thorough introduction to the subject, that goes way beyond the short chapters in standard textbooks such as Hull's or Wilmott's (I am not familiar with Miron and Swannell). The first edition (the one that I'm familiar with) does indeed contain a number of irritating typos, many terms are first used then defined later, and the figures in particular can be greatly improved upon (I think they were produced by `Excel', which is not the best tool to produce high-quality figures for a serious technical book), however such glitches are typical of almost all books of such size and technical level. The mathematics is not entirely trivial, but not too sophisticated either (a typical university science/engineering graduate should be able to handle it easily), and the author makes a valiant attempt to explain all relevant concepts from linear algebra to probability theory (I have to add that I didn't appreciate certain fast tricks like dropping the measure `dt' from the end of certain equations `to lighten the notation'. By doing that, one ends up with the wrong equation!)As the author clearly indicates at the beginning, though reasonably self-contained, the book is by no means intended for a first course on option theory. However, for readers familiar with the basic facts of options and futures (at the level of Hull's book), this is a great book to read. I personally learnt an enormous lot from a first reading. I highly recommend it.

This book provides a comprehensive discussion of the popular term structure models and their applications to derivatives pricing. The mathematics is quite heavy, but is well explained, and throughout the author describes the practical issues of implemention, as well as empirical studies of the various models performance. Overall, a well balanced book spanning both theory and practice. Unfortunately, as other reviewers have pointed out, the book is full of typos (it seems almost one a page) so that the reader has to spend time figuring out what the author really means. For example, in the section describing the pricing of discount bonds using the forward measure, there naturally arise three time parameters (current time, maturity, forward time). These parameters are arbitrarily interchanged in the text, making reading almost impossible. A worse mistake is in the authors description of the Cox-Ingersoll-Ross model where the author simultaneously assumes a zero market price of risk in the SDE but then introduces a non-zero market price of risk in the PDE. This leads to a strange bond price formula which is not preference free. All in all, a good book, but severely handicapped by typos.