I usually carve handles to rough shape with an axe, fine tune with a knife and depending on how careful I've been, continue with a rasp and then sandpaper and then steel wool.
If you're using corby rivets, you do need a little ridge for the rivets to hold on to. I think you get special drill bits with a step in them which makes life easier but I could be mistaken. The rivets will protude, the idea is that you put them on before shaping the handle and then grind them down with the wood. Obviously that can't be done with a wood rasp, so an electric sander will help considerably.
I finish to 400 or 600 with sandpaper for most woods. Wenge is an exception, as it sorta has two layers in the grain - a paler, softer bit and a harder and darker wood. If you take the time to go up the grits a bit further (the most I've used is about 1200 but I think that's overkill really) and finish with very fine steel wool and oil, it looks lovely and the softer wood wearing away leaves a lovely texture. Things like Buffalo horn and Antler can do with a higher grit, because they take a lovely polish. Buffalo horn I would only leave matte if I could reliably get a good matte finish with no scratch marks - possibly a sandblasting would achieve that. Really though, it's a matter of opinion - some people like glossy handles, I feel that they'll often cause blisters more than a satin or matte finish.
After sanding I soak in linseed oil overnight, and then apply several coats of linseed oil over a week or two with fine steel wool, allowing time to dry in between. If using leather in the handle, I finish that with superglue before sanding.
Sorry if there's a bit too much detail there!
Pete