The theory of the relation between optical properties and electronic band structures is reviewed. In the first part, we describe various approaches to go beyond the long-wavelength limit perturbation theoretical approach in the independent particle approximation for linear optical response functions. In the latter, electron-electron interaction effects are only included in as far as they are implicit in the underlying band structure (typically within the local density functional approximation). We discuss the inclusion of quasiparticle corrections to the band structures, local-field and electron-hole interaction effects. A case study of GaN is used to illustrate the discrepancies between theory and experiment that arise from neglect of these effects. On the other hand, the paper also illustrates that in the process of extracting the band structure information from optical spectra, the independent particle model still plays a central role. In the case of nonlinear optical response, even the independent particle model was only recently fully developed. Recent progress in this area and their implementation within the context of first-principles band structure methods is presented next. Some examples are used to illustrate the potentially richer information contained in NLO spectra in relation to the underlying band structures. Secondly, progress in understanding the trends in NLO coefficients in some classes of materials is illustrated with a study of chalcopyrites.
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