Thursday, December 15, 2005

CAPITAL IDEAS- by Peter Bernstein: aka Giants of FE

From Gown to Town...

I am currently reading this really nice book on the origins of modern wall street. Turns out this book is required reading for an MFE class as well. Extremely well written and chock full of accounts on the development of modern day finance.

I liked the story about the father of modern day finance - an unknown mathematician at the turn of the century - Louis Bachelier. It turns out that this guy had worked out the mathematics behind brownian motion a couple of years before Einstein did. Quite interesting...

Next giant in the history of modern finance - a 25 year old graduate student at the University of Chicago - Harry Markowitz, who literally laid the foundations for modern day portfolio management. Markowitz made a tremendous leap in the way we quantify risk and return - he formalized two age old adages - "Dont put all your eggs in one basket" (Diversification) and "Nothing ventured Nothing gained" (Risk vs. Return)., into an elegant mathematical framework.

To be contd (Black and Scholes, and OTHERS..)...

3 Comments:

Blogger whatever_it_takes said...

Hi,
I am starting to read the book too, its a requirement for a finance class i am taking at UCSB in preparation for MFE. Have you read the book "When genius failed, raise and fall of LTCM". This book is great, and it very well written as well as gripping. It is also very pertinent to current sitution. Just some time back there was a story about a LTCM like hedge fund getting into trouble over doing overnight trades etc etc.
Also one book i am reading is "Irrational Exubrance". I guess its a fairly popular book. The book came out just before the fall in 2001(??) and predicted that market was very expensive. Again the author is in news this week saying market is still overvalued ( :) i hope he is wrong but i feel he is not).
Anyway, best of luck for ur reading, keep us posted on any good books u come across. Also can i ask for slight help? I am applying for MFE and wanted some help with my essays :). If you have some time i would like to ask you some questions and maybe go over my drafts. Guess u must be busy with ur course;).

2:21 PM, December 19, 2005  
Blogger Quantjock said...

Sure... send them to me. i can offer some suggestions and overall critique..

mail to swoop2_2000@yahoo.com

5:27 PM, December 19, 2005  
Blogger shooGu said...

I'm about 2/3 of the way through Bernstein's book right now. I think it's good, but somehow I was hoping for something more.

On the subject of LTCM, I haven't read "When genius failed" yet, but I highly recommend another book on that topic: "Inventing Money" by N. Dunbar. Actually, I think Dunbar does a better job of explaining the background and history of financial engineering than Bernstein does--from Bachelier to Markowitz to Black-Scholes-Merton.

3:06 PM, February 23, 2006  

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