Financial Hacking is a witty, practical, and informative introduction to financial derivatives that is a welcome reprieve from the overly-academic treatments common in the space. It is the least academic options textbook I’ve come across; I’m not even sure if it identifies as a textbook...
Maymin encourages readers to develop heuristics and intuition, hacking together quick simulations instead of mucking about with stochastic calculus. This emphasis on experimentation is one of the areas where the book stands out; rather than just presenting simulation results, Maymin explains how to set up simulations, identifying some of the common errors and good practices. Having spent hours trying to build and debug such scripts, I wish I had been told this before.
Technical explanations are given in plain English, and the book is packed with little financial puzzles that memorably elucidate the concepts at hand; some of these puzzles address questions that took me a long time to build an intuition for (like why we can’t always sell skew), others address questions I had never thought to ask (for example the fact that stocks are actually forwards due T+2 settlement).
Regarding where this book fits in with other volatility resources, Financial Hacking discusses similar content to that in Sinclair’s Volatility Trading, but it is more “interactive” due to the puzzles and step-by-step explanations. Part 3 of the book covers exotic options: though this isn’t particularly relevant to me, it’s a good illustration of the financial hacker’s approach – rather than trying to analytically price some complex derivative, we can use intuition to get a rough sense of the risks. The Derivatives Academy is a nice next step for people who want to move beyond pure “hacking” into the pricing of exotics, without completely sacrificing intuition.
I enjoyed Financial Hacking immensely and would be comfortable recommending it (possibly excluding Part 3) as one of the first books one should read on a derivatives trading desk. I end this review with Maymin’s financial hacking manifesto:
“Accumulate risks that are hateful to others; dispose of risks that are hateful to you. That is the whole of financial hacking; the rest is commentary. Now go and trade.”
“Finance is the study of risk, even though risk does not have a perfect decision”.
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How is it pronounced? Is it fin-ANCE or FINE-ance? (a) It is pronounced FINE-ance when it is a verb, as in, “I want to finance this vehicle,” but fin-ANCE when it is a noun, as in, “I work in finance.” (b) The exact opposite is true. (c) Neither of the above is true.
The answer seems to be (a) in the U.S.A. and (b) in the U.K., so globally the answer must be (c). I don't think anybody knows. Pronounce it however you like, in any context.
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Quantum physicist and Nobel laureate Niels Bohr once said, essentially, that the opposite of a true statement is obviously false, but the opposite of a profound truth is another profound truth. The existence of arbitrage opportunities is a profound truth. Arbitrage is simultaneously both impossible and prevalent. Bohr argued that only in allowing and confronting the paradox head-on can we grow in our understanding. “How wonderful that we have met with a paradox. Now we have some hope of making progress.” Niels Bohr
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“Accumulate risks that are hateful to others; dispose of risks that are hateful to you. That is the whole of financial hacking; the rest is commentary. Now go and trade.”
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“Keep cool, Simpson. Be in the game, but not of the game.” Bart Simpson
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