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Book Review - Traders, Guns & Money: Knowns and unknowns in the dazzling world of derivatives

Tuesday 13 July 2010 - by Luke Nelson

Satyajit Das takes the reader on a journey through the “dazzling” world of derivatives in an entertaining tome peppered with amusing anecdotes.

He grabs the reader’s attention from the outset, opening with a pitiful tale of how two relatively successful Indonesian noodle makers manage to bankrupt their business by entering into a derivatives deal that they clearly do not understand. As Das emphasises throughout, complex financial products have a perilous power to seduce – particularly when they are not fully understood.

Das goes on to describe the most basic types of derivatives including forwards, puts and swaps. Through the use of a classic analogy of a wheat farmer and baker seeking to hedge, he explains why derivatives originated. The evolution of derivatives is developed organically with adequate reference to relevant socio-political events.

The author provides explanations of why various structures were created – generally to avoid taxation, exploit regulatory arbitrage, and other ways to offer investors greater yield and earn dealers greater fees. He mixes real life events, such as the bankruptcy of Orange County, with his own stories to good effect. The characters Das creates are believable, entertaining and provide a good means of presenting complex financial concepts in an accessible manner.

Das is also the author of a number of key reference texts on derivatives and risk management and has over 30 years’ experience of the financial markets. It is to his credit that he is able to adapt his writing style to reach out to a readership with a less developed understanding of finance. Only in a couple of places does the author get bogged down in explanations that are too technical for all but the geekiest enthusiast.



Although targeted at the uninitiated – Das’ insight into the world of derivatives will no doubt appeal to those who have worked in and around the industry and who will find the “murky” goings-on much more familiar.
Thoroughly recommended.


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