This is a list of the books on financial risk management and regulation as well as related aspects of finance used by me for learning – since I first began to write commentary on the subjects for UNCTAD and then for organisations such as the Group of 24 and NGOs including the Observatoire. This list was requested by someone who felt that economists nowadays make relatively little use of books, preferring journal articles and materials extracted from the internet. My own preference for books stems principally from two sources: my temperament which prefers fleshed out exposition; and the requirement of my UNCTAD chiefs and subsequent recipients for commentary which was not too narrowly focussed. My inclusion of the broader intellectual and political context of the subjects I tackled accorded with the need for including such context in UN documents and in those written for the other organisations mentioned above to enable my audiences of developing-country representatives, NGOs, and academics in developing countries to understand matters often somewhat remote from the more conventional subject areas of economic discussion and policy making. These considerations as well as a career which has not included time as an academic no doubt also helps to explain some of my rather idiosyncratic choices of relevant literature.
What follows is a list with some brief explanation of background since this is likely to be helpful. It is not a comprehensive guide to publications used by me. Rather the list concentrates on publications which played key roles throughout the progress of my understanding and my writing in the field.
1988 until approximately 1990
I was entrusted with the task of drafting a chapter on financial instability in the 1988 Trade and Development Report (TDR) in the aftermath of the stock-market crash in October 1987. My initial knowledge of the subject was limited and my reading reflected this. Literature other than for specialists on financial futures and options was then only beginning to burgeon. Much of my initial feel for such instruments was acquired from works on the commodity markets of which the most important was the widely used R.V.Teweles, C.V.Harlow and H.L.Stone, The Commodity Futures Game Who wins ? Who loses? Why ? (1974), of which there have been several subsequent editions up to that of 1999, sometimes by author groups containing new members and now including coverage of financial derivatives. At this time the material in the pioneering BIS report, Recent Innovations in International Banking (often referred to as the Cross Report after Sam Cross, the Chairman of the drafting committee) was gradually filtering into the less specialist literature and complemented a treatise written with an accounting perspective, J.I.Tiner and J.M.Conneely, Accounting for Treasury Products A Practical Guide to Accounting, Tax and Risk Control (1987), of which I also made extensive use for the TDR. The 1987 market crashes were the subject of a number of official reports, especially on the US markets, of which probably the most widely used is Report of the Presidential Task Force on Market Mechanisms (1988), often referred to as the Brady Report. For economies other than the US I found most useful as a learning vehicle the report on the Hong Kong markets owing to its extensive coverage of legal and infrastructural issues, The Operation and Regulation of the Hong Kong Securities Industry Report of the Securities Review Committee (often referred to as the Hay Davison Report after its Chairman, Ian Hay Davison).
Late 1980s –early 1990s
During a period starting at the end of the 1980s several books on risk management and derivatives for users with a practitioner’s rather than a more academic interest were published. This was when I began seriously to accumulate my own intellectual capital on the subject. Key books for me were the following: R.E.Fink and R.B.Feduniak, Futures Trading: Concepts and Strategy (1988), an outstandingly well written expository treatise regrettably not followed by further editions, of which the authors were – perhaps a little surprisingly – an independent trader and a Managing Director of Morgan Stanley; D.R. and D.F.Siegel, The Futures Markets Arbitrage, Risk Management and Portfolio Strategies (1990); and D.A.Dubofsky, Options and Financial Futures Valuation and Uses (1992), which contains a particularly methodical and lucid exposition of the basics of options.
My professional work during the early 1990s until 1994 involved primarily advisory work on the Uruguay Round (UR) negotiations on “international trade” in banking services and commentary on international regimes for cross-border capital movements as well as on financial regulation. All three subjects were linked in the UR negotiations but the work on financial regulation was eventually to prove the basis for my subsequent commentaries following the conclusion of the UR on trade in banking services in 1997 (most of the rest of the UR having already been concluded in 1994). The key books for my work in these areas were the following: R.W.Edwards, International Monetary Collaboration (1985) – a remarkably comprehensive account of the development of the legal framework of the international financial system between the 1940s and the early 1980s; M.Stigum, The Money Market, 3rd edition (1990); and R.Dale, The Regulation of International Banking (1984). I also relied on the periodic reports of the Basel Committee on Banking Supervision on its own work and on the adoption of its standards by non-member jurisdictions.
This period also witnessed the beginning of the proliferation of books on financial engineering, i.e. the use of financial instruments (including those incorporating recent financial innovations) to restructure an entity’s balance sheet and other features of its financial profile for the purpose of reducing risk or increasing profitability. For me the key books of my initial study here were L.S.Galitz, Financial Engineering (1995); and J.F.Marshall, Financial Engineering A Complete Guide to Financial Innovation (1992).
This period opened with the collapse of Barings which generated an extensive literature, popular as well as official. Two of the key official reports were that for the Singapore Ministry of Finance, Barings Futures (Singapore) Pte Ltd: The Report of the Inspectors Appointed by the Minister for Finance (1995) –a model official report for its lucidity and conciseness; and Report of the Board of Banking Supervision Inquiry into the Circumstances of the Collapse of Barings (1995), a publication of the Bank of England which lacks the cutting edge of the Singapore report.
This was also a period during which there was an acceleration of official work on financial regulation in response not only to shortcomings revealed by the Barings collapse but also to belief that existing rules had failed to keep up with developments in the financial sector. A major focus of attention were perceived weaknesses of the 1988 accord, Basel I, whose measurements for setting capital standards did not satisfactorily accommodate changes in credit and market risk due to the increased scale of securitisation and to transactional innovations especially in the area of derivatives. One of the consequences of the period’s events was a sharply increased number of documents published by the BCBS and other Basel bodies.
New and increasingly sophisticated texts on risk management and derivatives continued to appear. I found particularly useful J.C.Hull, Options, Futures and Other Derivatives, a text which has gone through several editions and has proved particularly popular with both practitioners and students in finance faculties; and R.Jarrow and S.Turnbull, Derivative Securities (1996) – meticulous but drier than Hull.
There are several books covering legal background of the development of derivatives during this period. I have made much use of S.James, The Law of Derivatives (1999), a book with a primarily British focus but especially useful on subjects such as the development of the distinction between derivatives, on the one hand, and wagering and gambling, on the other.
The increased attention of financial economists to risk management began to filter into textbooks and treatises on international finance. For me the most useful of these – owing to the depth of its treatment of financial instruments for managing risks, to its discussion of forecasting and chaos in international financial markets, and to its attention to historical background – is J.O.Grabbe, International Financial Markets, 3rd edition (1996)
The Asian financial crisis generated a large literature. On the role, risk management and regulation of banks I found particularly useful P.F.Delhaise, Asia in Crisis the Implosion of the Banking and Finance Systems (1998) – by a writer with extensive Asian experience both of banking and of working for a rating agency – and J.Golin, The Bank Credit Analysis Handbook A Guide for Analysts, Bankers and Investors (2001) (Golin being an analyst and credit rater professionally associated with Delhaise), which contains much information not easily available elsewhere on bank activities, accounting, rating, supervision, and restructuring, illustrated principally with material concerning Asian banks. On the role in the Asian crisis of speculation and hedge funds G.de Brouwer, Hedge Funds in Emerging Markets (2001), contains much information and analysis. A perspective on the crisis more distant from the events themselves is provided by A.Sheng, From Asian to Global Financial Crisis An Asian Regulator’s View of Unfettered Finance in the 1990s and 2000s (2009).
In the aftermath of the Asian crisis there was greatly increased attention to bank regulation and risk management. The central initiative under the heading of regulation was the revision of the 1988 Basel Accord or Basel II as it was initially called. Regulation overlapped with risk management, innovatory practices under the latter heading leading to major changes in financial instruments and infrastructure with which revisions in regulation tried, at best partially successfully, to keep up. The result was a series of changes in the substance and nomenclature of the revised Basel Accord, Basel II becoming Basel II.5, which in turn became Basel III, and after the latest series of revisions still incomplete should probably be called Basel III.5 or even Basel IV.
An early and highly successful treatment of regulatory developments, primarily the then still incomplete development of Basel II, was C.Matten, Managing Bank Capital: Capital Allocation and Performance Measurement, 2nd edition (2000), which integrated its commentary on practices of risk management, internal control and regulation with detailed coverage of their principal subjects, especially credit and market/trading risk. The period was also notable for books on particular instruments whose origin belonged to the 1990s but which became more prominent in the new millennium, of which an excellent example is I.Nelken, Implementing Credit Derivatives Strategies and Techniques for Using Credit Derivatives in Risk Management (1999). A book consisting of explanations of many different investment instruments and derivatives by an active investor and former financial journalist, which almost completely manages to avoid technicalities, is P.Temple, The Investors Toolbox (2007).
As the first decade of the new millennium progressed, attention began to turn to what groupings of new instruments and practices at the level of institutions might imply for risk management and financial regulation. An excellent example of this work is J.C.Hull, Risk Management and Financial institutions (2007), which integrates a boiled-down version of the author’s text on derivatives with a much fuller discussion of the way in which new financial instruments are used as part of risk management and speculation. Overviews of the entire evolving international financial system – institutions, practices and relevant law – can be found a series of case-book volumes, International Finance Transactions, Policy, and Regulation, authored by H.S.Scott and for the nineteenth edition (of 2012) in my possession by a co-author A.Gelpern. These are comprehensive and lengthy, recently weighing in at well over 1,000 pages, and cover subjects of which it is sometimes difficult to find accessible coverage elsewhere such as the securitisation practices that played significant roles in the Global Financial Crisis (GFC). The best blow-by-blow account known to me of the financial crisis in the US is the work of the Financial Crisis Inquiry Commission, The Financial Crisis Inquiry Report (2011). Partly compensating for the absence of coverage of countries and regions other than the US in this study is the brief but useful overview in T.A.Russo and A.J.Katzel, The 2008 Financial Crisis and Its Aftermath: Addressing the Next Debt Challenge, Occasional Paper 82, Group of Thirty (2011).
This period was notable for the publication of two wide-ranging and detailed overviews of banking and financial markets: a 2nd edition of The Bank Credit Analysis Handbook A Guide for Analysts, Bankers, and Investors (2013), now co-authored by J.Golin and P.Delhaise; and the 4th edition of Stigum’s Money Market (2007), updated by A. Crescenzi. Both of these books are wide-ranging and long: the first (900 pages) is centred on the practices of banking institutions, markets receiving more limited independent attention; and the second (more than 1,100 pages) provides extensive coverage of the markets for financial instruments, the banking practices discussed being mainly those associated with these markets, especially those with an international dimension.
Unsurprisingly recent legal developments have received extensive treatment. Three books which I have used extensively are G.A.Walker, International Banking Regulation Law, Policy and Practice (2001), A.Hudson (ed.), Credit Derivatives Law, Regulation and Accounting Issues (2000), and S.K.Henderson, Henderson on Derivatives, 1st edition (2003) – of which a more recent edition is now available. The exposition in Henderson’s 900-page blockbuster is sometimes a little uneven but the book includes much useful history as well as coverage of intricate legal and institutional issues in scandals such as Enron. The regulation of derivatives prior to post-GFC reforms is covered at considerable length in E.Parker and M.Perzanowski (eds.), Commodity Derivatives Documenting and Understanding Commodity Derivative Products (2010): although the laws covered in this book are directed at the markets for commodities, bullion, weather, energy, emissions and freight, the underlying principles are mostly also relevant to financial markets. Overviews are now appearing of the post-GFC reforms of which a particularly readable example for the US is D.Skeel, The New Financial Deal Understanding the Dodd-Frank Act and Its (Unintended) Consequences (2011).
Under the heading of institutions and law should also be included E.J.Swan, Building the Global Market A 4000 Year History of Derivatives (2000). This fascinating book was the doctoral thesis of a pioneer derivatives lawyer, written in his mature years.
Treatises on risk management and derivatives frequently contain mathematical argumentation at various levels of complexity. Books are also available with extensive, specialised exposition of relevant mathematics for financial models, of which two examples are S.H.Neftci, Introduction to the Mathematics of Financial Derivatives,2nd edition (2000), and T.Mikosch, Elementary Stochastic Calculus with Finance in View (2004). The first of these books is highly accessible but lacks the usefully more detailed treatment in the second of key concepts of mathematical statistics for financial modelling such as stochastic processes and conditional probability (which is particularly relevant for forecasting and futuristic valuation). Also worthy of mention here is A.N.Shiryaev, Essentials of Stochastic Finance Facts, Models, Theory (2001). Of this book by a Russian probabilist (who is also an editor of the collected scientific papers of A.N.Kolmogorov, the most famous of the developers of 20th century mathematical probability theory) the first chapter contains a remarkably concise presentation of the principal concepts and applications of financial theory and financial engineering, and chapter IV an overview of the techniques used in the statistical analysis of financial data. The rest of the lengthy (800-page) book is mostly an extended and detailed presentation of financial models at a mathematical level likely to be of use primarily to a more specialised readership.
This brings to an end my personal financial and mathematical autodidact’s bibliography. My choices for inclusion will inevitably not meet with general approval. My guide omits many useful but generally less technical books, including regrettably several books by journalists and practitioners which provide excellent and vivid accounts both of the development of financial institutions and markets and of crises such as the collapse of Barings, witnessed as they unfolded. My justification for the limitations resulting from my approach here is the greatly increased length which such inclusion would have required.