Pricing Money: A Beginner's Guide to Money, Bonds, Futures and Swaps

by J.D.A. Wiseman

Pricing Money provides a highly practical introduction to the principles of bonds and fixed income and is aimed at readers who have little prior knowledge.

The book is written in a style that is not overly mathematical or theoretical but takes a practical approach focusing on the aspects of pricing and trading fixed-income securities that are most relevant to the day-to-day activities of people working in the markets.

Starting at a basic level the author explains the concepts and principles behind fixed income in an informative way using every day examples that can be understood by the layman. It includes a listing of the terms used; the rules and conventions; the techniques for valuation and pricing and a description of the different roles within the industry. This book will be an excellent training tool for new recruits to the financial markets.

Genres: Finance, Economics

192 pages, Paperback

First published November 12, 2001

Reviews

[Eli · Rating 5 out of 5]

Pricing Money is a great, concise introduction to fixed-income markets. Whereas Central Banking 101 is a solid introduction to central banking, money, and the institutions behind interest rate markets, Pricing Money is more focused on how these markets are traded. For example, Central Banking 101 introduces the yield curve and how the Fed controls the front-end (and attempts to control the long-end), whereas Pricing Money walks the reader through potential yield curve trades and how traders interpret central bank actions.

Pricing Money is a quick read that efficiently covers the fundamentals—I was able to finish it in an afternoon—but it still offers some valuable insights. There was an interesting section in the book on barrier options and how there is an incentive for traders of barrier options to manipulate the underlying assets to trigger barriers (either knocking in or out an option you hold). Wiseman’s skepticism of barrier options was a nice complement to Financial Hacking’s discussion on pricing exotics. In fact, Financial Hacking would have benefitted from more discussion on pricing this risk when short certain exotics.

There were also a few good pieces of trading wisdom, echoing The Laws of Trading, including:
1. “Necessity Never Made a Good Bargain”—Price action in calm times is driven by the desperation of the buyer (or seller). Those who are desperate will get ripped off.
2. Prices move to inflict the maximum pain on those who are least able to take it.

There was also a nice and intuitive discussion of what carry means:

1. Carry is the P&L you generate when “nothing” happens. There are several different meanings of “nothing” though!
1. It can mean the P&L from the passage of time assuming prices are unchanged
2. It can mean the P&L assuming yields, not prices remain constant
3. It can mean P&L assuming the Yield Curve, not yields or prices remain constant!

Overall Pricing Money succeeds in its goal of being a great beginner’s guide to rates markets. While I would have appreciated more depth in some areas, the book is clear, well-structured, and highly readable. Given its effectiveness and efficiency as an introduction, I’m giving it 5 stars.

[Szymon Woźniak · Rating 5 out of 5]

Great and succinct introduction to fixed income markets. Covering lots of grounds without delving into too much detail. Would love to see other technical, finance books written in this style.

[Robert · Rating 4 out of 5]

An excellent introduction to interest rate markets. Wiseman explains with succinct clarity why various instruments exist and centres the discussion on concrete cases: for example, banks generally want to borrow floating-rate cash flows to match their floating-rate liabilities, while insurance companies would prefer to lend at a fixed rate – interest rate swaps allow the twain to meet. Similarly, if investors want to receive sterling coupons but a company wants to borrow in USD, a cross-currency basis swap allows both parties to have their desired cash flows. The discussion of repos and eurodollars, two massively important but easy-to-misunderstand concepts, is second to none.

While Pricing Money is explicitly pitched as a beginners guide and thus does not deeply explore the manifold mathematical intricacies of the instruments, he gives a wonderful overview of the numerous conventions used in rates markets, which often feel like they exist purely to make the space more impenetrable to outsiders. It's not surprising that Pricing Money is so highly recommended to junior rates traders!

[Purushothaman Thambu · Rating 5 out of 5]

Definitely worthwhile read - especially understanding different instruments and above all understand how the interest rates is the most important factor and behind so many instruments especially derivatives.