Traders, Guns and Money: Knowns and Unknowns in the Dazzling World of Derivatives (2006) by Satayajit Das is an insider’s view into the very weird world of modern derivatives.
Das worked in Australia for the CBA and has worked around the world on all sides of derivatives deals. He has also written text books on derivatives so he knows the subject deeply. He is also an engaging, funny writer. It is odd to laugh at a book on complex financial products but this book causes that to happen.
The book starts by talking about the end of a failed derivatives trade where an Indonesian noodle business used financial engineering that worked in the short term before it collapsed. The Indonesian noodle business was refusing to pay up.
Das then gives an overview of derivatives and then talks about how the Sell side of dealers work and the buy side of who was buying the derivatives. The talk about traders is highly amusing. The talk about the people on the buy side, like the Japanese banks who were already looking suspect in the boom years of the 1980s is fascinating. It would be great to know how traders are now dealing with Chinese companies.
Das goes on to write more about the theory, about risk management, some of the basic ideas behind the models and the derivatives, structured products and CDSs and C(D|B)Os. What’s so good about the book is the way it combines deep personal knowledge with fine writing and a sense of humour. He makes fun of just about everyone, including himself.
The book ties it together by describing the outcome of the court case with the Indonesian Noodle business, a quick look at China and a conclusion about the strange world that is so important in the way the world now works.