Why I Became Attracted To Derivatives
Back then, that was perfectly fine with me, as I had never had any interest in finance anyway. As a semi-intellectual brought up in an upper middle class environment populated by poetry-reading, opera-going, Einstein-admiring characters I grew up developing a certain disdain for anthything financial (no, I wasn´t a crazed anti-globalization activist). I read The Economist, but usually skipped the markets section and concentrated on African politics (exactly the opposite as what I do now). I read tons of books from the Business aisles but they were by Krugman, Friedman, and Dornbusch and thus dealt exclusively with economic policy and international economics. The last thing on my mind by the time I was in my early 20s was to work for an investment bank or an asset manager (mostly because I didn´t know that such things existed).
All this changed when I (luckily) travelled to the US to pursue graduate studies at the economics department of American University in Washington DC. At AU (or “Club Med”, as the place was also dubbed due to its easy-going ambiance, its pristine little campus, and the attractive and wealthy international student body) I enrolled in the “development banking” track as a way to get a job at, you guessed it, one of the development banks in town. After having spent a fruitful and deliciously eventful summer at the InterAmerican Development Bank, my goal in life had become to set up shop permanently in either the IDB or the World Bank, ideally doing some international economics stuff.
These carefully-crafted plans were shockingly derailed by my attending an AU class titled “International Capital Markets Workshop” imparted by (irony or ironies) a top finance professional at the IDB. Through this course I was introduced, for the first time in my life, to things such as options, swaps, forward curves, and risk management. This indoctrination period coincided with The Economist releasing a couple of special reports on mathematical finance and corporate hedging, which I duly devoured thus discovering the Procter&Gamble scandal and rocket scientists, among lots of other intriguing stuff. The period also witnessed the birth of several financial engineering programs at top universities, with their cutting-edge curriculums and impossibly selective admissions policies.
I became instantly and irremediably hooked by the derivatives world. I began to use my spare cash (this was before I started tutoring other students, eventually making more than $2000 a month) on buying any book with the word “derivatives” on it. I had always been a frequent visitor to bookstores, but now I was suffering from an addiction. As with any addiction, my infatuation with derivatives required its daily fix and I obliged by religiously partying with the $50-60 that each one of these specialized books demanded (it is a safe bet that I eventually ended up reading just half of these expensive tomes).
Why the infatuation? Why the sudden and unabated love affair? I mean, my attraction towards the derivatives world made Glenn Close´s obsession with Michael Douglas in “Fatal Attraction” seem like a pleasant picnic.
In one word: sophistication. Everything about derivatives seemed so cutting-edge, so new, so out-of-this-world that I couldn´t help succumbing. Derivatives products seemed far more interesting and complex than anything else out there. Derivatives pros seemed much smarter and richer than anybody else. Derivatives university courses seemed much more select and demanding than the alternatives. Here was a field were mysterious genius individuals seemed to be making millions by operating with funky financial products which handling required super sophisticated techniques such as stochastic calculus and C++ (I remember naively considering doing a masters in computer science as a way to become a derivatives superstar). The fact that several prominent companies and financial institutions had been inmersed in headline-grabbing derivatives-related scandals only enhanced the field´s attractiveness. To the complexity factor we could now also add the high drama factor.
Derivatives, in sum, were super sexy. And I desperately wanted to be sexy.
