We present a systematic theory of Coulomb interaction effects in the nonlin
ear optical processes in semiconductors using a perturbation series in the
exciting laser field. The third-order dynamical response consists of a phas
e-space filling correction, a mean-field exciton-exciton interaction, and t
wo-exciton correlation effects expressed as a force-force correlation funct
ion. The theory provides a unified description of effects of bound and unbo
und biexcitons, including memory effects beyond the Markovian approximation
. In the degenerate four-wave-mixing experiments, correlation effects are s
hown leading to polarization mixing, ringing, etc. The strong interaction,
a nonperturbative theory of the correlation function, is numerically evalua
ted for a one-dimensional model. Approximations for the correlation functio
n are presented. [S0163-1829(98)03643-1].