How to think like a Banker (Reading List)

If you're reading on WeWrite, switch Paragraph Mode to Normal Mode, otherwise you won't be able to read this. This reading list is presented in order; the book above is prerequisite for the book below.

Accounting:

https://en.wikipedia.org/wiki/Mark-to-market_accounting

https://www.investopedia.com/terms/n/notionalvalue.asp

https://en.wikipedia.org/wiki/Income_statement

https://www.interactivebrokers.com/campus/glossary-terms/unrealized-pl/

https://en.wikipedia.org/wiki/Balance_sheet

For the accounting articles listed above, learn what they are and how they relate to one another and impact each other. How will today's PNL impact my equity?

Math prerequisites:

College-Level Calculus and Multivariable Calculus: I don't have a book for this. If you only took high school calculus, learn integration-by-parts and partial integration. You need them for probability

"Probability, Statistics, and Random Processes for Electrical Engineering" - Alberton Leon Garcia: You don't need to master this book, but you should be able to write P(X < x) of a random variable, X, in integral form, and be able to explain in plain english why the integral form looks like that. You should be able to do the same for the CDF in integral form. You should also be able to form a DECENT GUESS of most distributions' Expected Value and Standard Deviation just by looking at them. Make sure to also get a vague idea of what conditional probability looks like.

"Statistical Consequences of Fat Tails: Real World Preasymptotics, Epistemology, and Applications" - Nassim Nicholas Taleb: Learning about Kurtosis will explain the epistemological limits of many modern-day middle offices and their limitations in appraising portfolios and positions. Afaik, the overwhelming majority of modern financial institutions each have a middle office that uses the statistical techniques that are criticized in this book.

Finance:

https://en.wikipedia.org/wiki/Volatility_(finance)

"Options, Futures, and Other Derivatives" - John C Hull: Use this to study how financial derivatives are priced. If you have an idea of how to use the Black-Scholes Equation to price a limit order on an option in Robinhood -- based on historical data and what you think the future stock price will be -- then you probably understand enough

"Winning in the commodities market: A money-making guide to commodity futures trading" - George Angell: How are financial derivatives formed on commodities like fish, wheat, and oil? And why?

"Value At Risk: The New Benchmark for Managing Financial Risk" - Philippe Jorion: Learn how to calculate VaR. Any time you read elsewhere words like "underwriting", "middle office", "credit agency", “risk management” it is mostly likely referring to people who compute VaR.

"Derivatives and Risk Management Made Simple" - National Association of Pension Funds: Handy explanation of inflation swaps, interest rate swaps, and credit default swaps. I don't know, but assume that these financial derivatives are also used for loan securitization firms, not just pension funds. So they're important.

"An analytic derivation of the cost of deposit insurance and loan guarantees An application of modern option pricing theory" - Robert C. Merton: Explains how options pricing is used to appraise loan insurance policies, such as those from the FDIC. This is important since insurance also largely facilitates loan securitization i.e. they make securities more attractive to investors.

Heterodox Finance:

"Why We Have Never Used the Black–Scholes–Merton Option Pricing Formula" - Espen Gaarder Haug and Nassim Nicholas Taleb

"Fractal Market Analysis" - Edgard E. Peters

"The Inefficient Stock Market: What Pays Off and Why" - Robert A. Haugen

"Applied Conic Finance" - Dilip Madan and Wim Schoutens