Best Quant Books

When you start out as a Quant, it can feel like there is a never ending learning treadmill. There are so many areas, from coding to market structure to investing principles and pricing models, you have to learn that it never seems to end.

I put together the following list of the best Quant books that helped me to get to where I am today. I first started out investing through the discretionary side, so I had most of the investing fundamentals down. The list below assumes the reader knows how the market works at an intermediate level and, even if you are a specialist in a particular section like a developer, researcher or algo builder, the books below provide a good context of the adjacent fields so that if you have a better context of doing your job better.

Financial Engineering Books: These books form the base stats and math theory you need to know. In my life as a Quant, there is no on-the-spot test, but knowing the basics down pat makes the search for alpha easier as it is a core building block of finding the economic reasons in developing strategies.

1. “Stochastic Calculus for Finance I: The Binomial Asset Pricing Model” by Steven Shreve – This book introduces the Binomial Asset Pricing Model and its applications in the field of financial engineering.
2. “Stochastic Calculus for Finance II: Continuous-Time Models” by Steven Shreve – This book expands on the first volume, exploring continuous-time models and their applications in financial engineering.
3. “Arbitrage Theory in Continuous Time” by Thomas Bjork – Arbitage theory covers financial engineering, stochastic processes, and calculus in the context of arbitrage theory, with a focus on continuous-time models.
4. “Options, Futures, and Other Derivatives” by John C. Hull – This is a comprehensive textbook for options from pricing to risk management strategies and different intuitive ways options can be used to express views/position in the market.
5. “Mathematics for Economists” by Carl P. Simon and Lawrence Blume – This book is a reference for the mathematics used in economics and financial engineering, including calculus, linear algebra, and optimization.
6. “Intermediate Microeconomics: A Modern Approach” by Hal R. Varian – This book offers a comprehensive introduction to microeconomics, covering topics such as consumer behavior, producer theory, and market structures.
7. “Time Series Analysis” by James D. Hamilton – Time Series Analysis provides a detailed exploration of time series analysis, including various tests and the underlying mathematics.
8. “Probability and Statistics for Engineering and the Sciences, 8th Edition” by Jay L. Devore – This textbook provides a solid foundation in probability and statistics, with a focus on applications in engineering and the sciences.
9. “Fundamentals of Corporate Finance” by Stephen A. Ross, Randolph W. Westerfield, and Bradford D. Jordan – This book covers the core concepts and theories of corporate finance, including valuation, capital budgeting, and risk management. It is suitable for both students and professionals looking to gain a solid understanding of the field.

Investment – The fundamental role of what we do is investing; it should be the paramount underlying goal of everything we do. These books provide a crucial context of what it means to be an investor and the practice of investing.

1. “Trading in the Zone: Master the Market with Confidence, Discipline, and a Winning Attitude” by Mark Douglas – TIZ is not a well known book, but I read it after being trading for a while, and everything in it clicked for me. I try to reread this every couple of years so the ideas in it are always close to how I am dealing with the market. It focuses on the psychological aspects of trading and aims to help traders develop the right mindset for successful trading. It covers topics such as overcoming fear, maintaining discipline, and developing a consistent trading approach. “Trading in the Zone” is an excellent resource for traders looking to improve their mental game and achieve better results in the market.
2. “Market Wizards: Interviews with Top Traders” by Jack D. Schwager – Market Wizards is a must read as the collection of interviews with some of the most successful traders and investors of their time show there is no one “true” way to invest. “Market Wizards” is an invaluable resource for traders and investors looking to learn from the experiences of some of the best in the industry and shows that success does not mean copying other investors / funds strategies. It is about the mindset, and skill of the individual and leveraging that in your path to success.

Risk Management

1. “Advanced Financial Risk Management” by Vaughn Deventer – This book provides an in-depth look at various aspects of financial risk management, including credit risk, liquidity risk, and market risk. It offers theoretical and practical insights for those interested in managing financial risks.
2. “Probability and Statistical Inference, 8th Edition” by Robert V. Hogg and Elliot A. Tanis – This book is an academic textbook that covers probability and statistical inference, with a focus on theory and mathematical rigor.
3. “Statistical Analysis of Financial Data in S+” by Rene Carmona – This book provides a practical guide to analyzing financial data using the S+ statistical software, with a focus on topics such as time series analysis and statistical modeling.
4. “The Art of R Programming” by Norman Matloff – This book is a guide to programming in R, with a focus on examples and optimization techniques for financial applications.

Biographies – Interesting books on the giants in the field who paved the way to where we are today.

1. “The Problem of HFT: Collected Writings on High Frequency Trading & Stock Market Structure Reform” by Haim Bodek – This book is a collection of writings that discuss the issues surrounding high-frequency trading and the need for reforms in the stock market structure.
2. “Models Behaving Badly” by Emanuel Derman – This book explores the limitations and dangers of relying too heavily on financial models, offering insights into the real-world consequences of using such models without considering their inherent flaws.
3. “My Life as a Quant” by Emanuel Derman – This book is an autobiographical account of Derman’s life as a quant, offering valuable insights into the world of quantitative finance and providing advice for those considering a career in the field.
4. “Fischer Black and the Revolutionary Idea of Finance” by Perry Mehrling – This book delves into the life and work of Fischer Black, a pioneer in the field of finance. It explores his groundbreaking theories and their impact on the world of finance.