5

This is the situation someone I know is in:

She has good understandings of stochastic calculus and the very basics about Black-Scholes and binomial model, but nothing more.

Her background is in statistics and she has a lot of experiences in time series modelling.

What would be good books to look at for a job as a quant in a fund or an investment bank?

I think the section in 'Heard on the street' is a nice for interviewing but it is written more like a 'crash course' for interview rather than a proper financial mathematical treatise.

(Though this may be off topic: some general advice is also nice, but I am mainly looking for a book)

KT8
  • 855
  • 4
  • 21
Lost1
  • 1,023
  • 6
  • 18
  • 2
    I disagree that this is a duplicate, OP specifically asked for books that highlight the practical aspect. I would recommend Taleb's "Dynamic Hedging", imho THE best book on options valuation and trading. – Matt Wolf Jan 20 '14 at 17:26
  • I agree with @MattWolf. The person in question needs a book on applied stochastic calculus. I recommend this book: http://www.amazon.co.uk/Stochastic-Financial-Applications-Modelling-Probability/dp/0387950168. –  Apr 27 '14 at 11:11

8 Answers8

5

My recommendations would be the following:

For starters in Quantitative Finance:

  • Hull - Options futures and other derivatives
  • Wilmott - Quantitative Finance

For an introduction to volatility:

  • Derman, Miller and Par - The volatility smile
  • Jim Gatheral - The volatility surface

For stochastic calculus:

  • Shreve - Stochastic calculus for finance I and II (I'd focus more on the second part).

For interest rates:

  • Brigo, Mercurio - Interest Rate Models - Theory and Practice

For Foreign exchange:

  • Wystup, U. - FX Options and structured products

For trading derivatives (specially equity):

  • Sinclair, Euan - Volatility Trading (nicely pointed out by Brian B)
  • Natenberg, Sheldon - Option Pricing And Volatility - Advanced Strategies And Trading Techniques
KT8
  • 855
  • 4
  • 21
  • I personally find Brigo and Mercurio very dense comparing to Piterberg, though admittedly I read neither in details and used them for occasional references. – Lost1 Feb 16 '24 at 13:38
  • My impresion was totally different. I also didnt read Piterbarg in detail however, but found Brigo's much easier to use when you need to take a quick look at something particular. But based on your comment I'll give Piterbarg another chance (in this regard, its a top book on the topic, I have no doubt) – KT8 Feb 16 '24 at 13:40
  • Brigo & Mercurio's is indeed probably better for quick references (and for LMM) but otherwise I find Piterbarg & Andersen's superior if you have the time (and also better for Gaussian term structure models). – Daneel Olivaw Feb 16 '24 at 19:31
  • 1
    Derman's book regarding the Volatility Smile is fantastic. Covers practical application from a very basic theoretical standpoint. The book was used (until Derman retired this year) to teach one of the most highly regarded classes at Columbia Universities MS in Financial Engineering. I took the class, and it teaches you everything you need to know to get started in volatility modeling and trading. – Valter Feb 16 '24 at 22:15
4

Here is some interesting things to consider, beyond the typical bibles like Hull and Wilmott etc.

For either route (buy/sell side), in terms of math, I think strong stochastic process would be great (depending on how strong her stoch cal is). Something you can consider:

For a quant in an investment bank, I think it depends on what you are looking for. For what I would say is a really up to date version of sell-side derivatives in general, that is highly intuitive but still somewhat mathematical, you can see this website: https://bookdown.org/maxime_debellefroid/MyBook/

Maxime did a really good job decomposing options, especially in the exotics/structures space without making it too unyieldingly academic.

If you are heading to the buy-side, especially quant trading firms, per my understanding they mainly look at material from the generic sources which I think is mostly covered in Sheldon Natenburg's Option Volatility and Pricing: Advanced Trading Strategies and Techniques (though this might be more basic than you are looking for, mastering this I think is quite imperative).

Kai
  • 123
  • 1
  • 7
3

I would recommmend her An introduction to the mathematics of financial derivatives by Neftci and some programming books(Numerical Recipes. The Art of Scientific Computing by william H press, C++ Design Patterns and Derivatives Pricing by Joshi).

Malick
  • 2,572
  • 18
  • 36
2

My recommendation are the books "Stochastic Calculus for Finance II: Continuous-Time Models" by Shreve or "Arbitrage Theory in Continuous Time" by Björk.

KT8
  • 855
  • 4
  • 21
0alessandrocicalese0
  • 21
  • 3
  • 1
    I think these two books are too much on the theory side to address the holes in an academic's experience. – Brian B Jan 31 '24 at 16:49
1

Hull's Options, Futures, and Other Derivatives.

AlRacoon
  • 6,397
  • 1
  • 9
  • 21
1

I have upvoted @KTB for an excellent list. There's one more that I would have placed at the very top of the list:

Brian B
  • 14,842
  • 28
  • 59
  • Thanks Brian, I have this one noted actually, but didn't include it since I haven't checked it out yet – KT8 Jan 31 '24 at 19:07
0

Now having worked some years in this sector, I would add Lorenzo Bergomi's "Stochastic Volatility Models". This is a must read for people working in equities and contains many of the actual models used at SocGen, which is one of the best banks in term of stochastics modelling.

Lost1
  • 1,023
  • 6
  • 18
0

The Greeks and Hedging explained by Peter Leoni is trying to bridge the gap between theory and practice. As the title indicates, it focuses on how traders hedge their books with the tools available, mainly the Black-Scholes model. It is light on math, strong on intuition building.

Raskolnikov
  • 1,527
  • 2
  • 18
  • 23