Financial Books

I have been compiling a quant finance reading list for my own use. My goal for the list is to have a research and scientific bent since the field is still ripe with interesting research questions.

One of the textbooks for the University of Chicago's economics Ph.D. program seems to be a pretty good introduction to time series analysis (the bread and butter theory behind mean reversion strategies): Prof. Ruey Tsay's Analysis of Financial Time Series. The downside is that the book uses a kind of dated and niche statistical computing language, S, for all its exercises. In practice, most of this can be fairly easily be converted to a more modern option such as R, Python, or Numpy/Scipy, but it does introduce some friction.

The classic is of course Hull's Options, Futures, and Other Derivatives (9th Edition) . The material seems to be more geared towards i-bank investments such as bond modeling than small time quantitative trading in equities. However, the markets are all related in the end so it is useful to gain a solid background. It is quite encyclopedic, covering everything from standard Black-Scholes derivations to VaR calculations to interest rate models. More recent editions of this book has a chapter that is something of a post-mortem on the recent financial crisis of 2007-2008 and the role that derivatives played in it.

Ganapathy Vidyamurthy's Pairs Trading: Quantitative Methods and Analysis (Wiley Finance) covers basic pairs trading, stat arb, and risk arb. I like how it gives significant background and references (though perhaps not the best references) on each subject.

On more of an entertainment bent, The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance is an excellent read. Some of the reviews on Amazon suggest that Chernow is too partial to the Morgans, but I felt that the robber baron perspective is well hashed out in other books and articles. Most such volumes only give a superficial treatment of the Morgans. This book is quite comprehensive. It reads like a historical novel. I highly recommend it.

At the moment, Principles of Quantitative Development is one of the few books (perhaps the only one) on the subject of implementation of a trading platform. It includes discussions about implementations of applicable design patterns, derivatives pricing tools, trade life cycle, data structures, and general trading platform architecture considerations. It even has a short section on functional programming. There are very few reviews of the book so far, mostly very negative.