book
reviews :
Option
Volatility & Pricing
by Sheldon Natenberg
along with hull, the best book on options trading available. gives
intuitive explanations of options pricing formulas and probablility.
emphasizes the theoretical aspects of implied volatility and its practical
applications in options trading. unlike most books in this area, doesn't
just leave off with a bunch of "hockey stick" charts with their fancy
names. rather, it gives you a theoretical way of thinking about the
construction of options positions in response to trading opportunity.
now what more could you ask for?
Risk Arbitrage
by Keith Moore
risk arbitrage is all about the numbers that represent risk and return: the former, of a deal being pulled, and the latter, of the oxymoronic "risk arbitrage" profit. thankfully, the strength of this book is in its numerical examples. it is the only fully focused treatment of this subject that mr. hedgie knows of, and luckily, it is well done. beware: this arcane field requires huge amounts of capital to handle the diversity and repetition necessary to reap long-term, statistical returns; it is not for the pee wee day trader who is looking for things to do after the blowout of 2000 and the stint as a shoe salesman in 2001.
Active Portfolio Management
by Richard Grinold & Ronald Kahn
in one corner, we have the "efficient markets" camp led by malkiel and a bunch of nobel-prize-winning professors from the university of chicago. in the other corner, we have the "i can beat the market" crowd - i.e. you and me. this is the primary dividing line in all of finance. i personally don't know who is right, after all is said and done. however, if you agree with the latter camp, this book is the best exposition of your case. mathematically rigorous coverage of modern financial theory and thorough explanation of the "fundamental law of active management," which quantifies the potential value added by a portfolio manager (something malkiel et al do not believe exists) as being proportional to both the "breadth" (number or frequency of bets) and the square of her forecasting accuracy.
Capital Ideas
by Peter Bernstein
a very nice narrative explaining the currents of thought and the players involved in the evolution of modern financial theory, with special emphasis on the aforementioned "university of chicago" school and its students, M&M (plain and with peanuts), modern portfolio theory, efficient markets theory, and the mathematically elegant world of black and scholes. also of note is coverage of the fascinating work of barr rosenberg, the "mad scientist" of finance who, through his elaborate use of powerful computers and reams of data, builds upon the work of markowitz, tobin, and sharpe in a determined quest to model, and ultimately, predict, stock behavior (in particular, beta).
Macroeconomics
by N. Gregory Mankiw
okay, okay. i know you'd probably prefer to poke your left eye out with a plastic fork before reading a basic textbook on macroeconomics...but wait! this one is different! trust me. many i know profess that this is the best textbook they've ever read, regardless of subject matter. clearly explains all those terms so often abused or misunderstood in the business media with highly intuitive language and visuals. brings ISLM, Mundell-Fleming, and all those other arcane macro models out of the ivory tower and into your head as you read the WSJ. but be forewarned - even after you have experienced this effect, you'd be best advised to repeat after me: "i am still NOT george soros...i am still NOT george soros..."
Value Investing
by Bruce Greenwald
being an old columbia u. curmudgeon himself, mr. hedgie had to get this book the moment it came out: why, his old finance professor is in fine form here, giving a comprehensive overview of the tried and true methods of the world's most famed value investors. they are all here under one roof. the dream team. graham & dodd, buffett, whitman, gabelli, klarman, cuniff, ruane, price, et al. a real feast for your brain.
Options, Futures and Other Derivatives
by John Hull
hull's work is exemplary in its ability to make a difficult, mathematically-challenging subject truly accessible in a logical, step-by-step fashion. similar books abound, but this is the defining work in the field and one of two essentials (the other being natenberg - see above) you really do need. put it this way: i own almost every options book out there, and this is the only one where i actually made it through the forest of binomial trees intact. if all else fails, you can always spout out something or other about stochastic processes at your next cocktail party and get chicks.
Fundamentals of Corporate Finance
by Richard Brealey, Stewart Myers et al
this is the leading corporate finance textbook, and a great place to start. if you just study this one book really, really hard, you can gain about 70% of the knowledge of most freshly-minted mba grads, while saving fifty grand. outstanding overview of capm and modern portfolio theory, capital budgeting and structure decision-making, and M&A. you can also take heart in the fact that the remaining 30% of the mba's knowledge mainly consists of unusable statistics and microeconomic theory, or worse yet, marketing (do great marketing people really even need to go to school?)
You Can Be a Stock Market Genius
by Joel Greenblatt
through all the blowups and carnage, hedge funds that invest in special situations - spinoffs, restructurings, M&A, bankruptcies, and distressed securities - have done quite well in the last decade following the boom boom boesky years of the late 80's. greenblatt has utilized this strategy to the tune of 50% annual returns for the life of his fund. and to think, this was done without massive positions in networking stocks. refreshing in its rekindling of the hope within most of us that a little investigative work and common sense can still make you money in the market.
Fundamentals of Real Estate Investment
by C.F. Sirmans
when mr. hedgie first came across this book, he couldn't believe his eyes! a real estate investment book that didn't have the words "no-money down"! and not only that, the author is actually diligent in his treatment of real estate investment in the broad context of all potential investments...just another asset class, with risk and return parameters that fit along the same "efficient horizon" as other investments within the capm universe (actually, this real estate author is perhaps the only one out there who knows the difference between capm and a cap rate). this puts him in a good position to treat real estate investment for just what it is, after adjusting for all the legal and tax ramifications: merely a bunch of cashflows that can be subjected to dcf/npv/irr analysis just like any other investment. and this is what this book does a superb, and singularly detailed (as no other real estate book even attempts to do), job of outlining. truly the only real estate investment book one should ever need.
Dynamic Hedging: Managing Vanilla and Exotic Options
by Nassim Taleb
although if one reads this guy's home page, one could get the (probably correct) impression that this guy is so full of himself it's coming out of his mouth, he does write a good options book. he brings fresh treatment of the often overlooked danger of relying on the b-s model's pricing assumptions too much. Attention is particularly focused on real world instability in forward implied volatilities (shifting volatility curves) that accompany often dramatic market moves (dealt with by utilizing such novel parameters as "shadow gamma" to deal with the vol smile and "skew gamma" to deal with directional price moves) and in the volatility of volatility at different option maturities (dealt with by adjusting vega with respect to different time buckets).
The Code of the Woosters
by P.G. Wodehouse
without ever making it through to the end of a yellow page-like shakespeare or dickens book, one can read the true master of the english language right here. one of the few people in the history of the universe who actually had complete control of the reader's funny bone. a must read, especially for die hard anglophiles.
