Risk CH2

• 1730

  First futures contracts on the price of rice in Japan
• 1864

  First futures contracts on agricultural products at the Chicago Board of Trade 1900 Louis Bachelier's thesis "Théorie de la Spéculation") Brownian motion
• 1932

  First issue of the Journal of Risk and Insurance
• 1942

  First issue of the Journal of Finance
• 1952

  Publication of Markowitz's (1952) article "Portfolio Selection"
• 1961-1966

  Treynor, Sharpe (1964), Lintner, and Mossin develop the CAPM
• 1963

  Arrow (1963) introduces optimal insurance, moral hazard, and adverse selection
• 1972

  Futures contracts on currencies at the Chicago Mercantile Exchange
• 1973

  Option valuation formulas by Black and Scholes (1973) and Merton (1973)
• 1974

  Merton's default risk model (1974)
• 1977

  Interest rate models by Vasicek (1977) and Cox, Ingersoll, and Ross (1985)
• 1980-1990

  Exotic options, swaptions, and stock derivatives
• 1979-1982

  First OTC contracts in the form of swaps currency and interest rate swaps
• 1985

  Creation of the Swap Dealers Association, which established the OTC exchange standards
• 1987

  First risk management department in a bank (Merrill Lynch)
• 1988

  Basel (set of international bank regulations that established minimum capital reserve requirements for financial institutions.)
• Late 1980s 1992 Value at risk (VaR) and calculation of optimal capital
• 1992

  Article by Heath, Jarrow, and Morton (1992) on the forward rate curve
• 1992

  Risk Metrics
• 1992

  Integrated Risk Management
• 1994-1995

  First bankruptcies associated with misuse (or speculation) of derivatives:

  1. Procter & Gamble (manufacturer, rates derivatives, 1994)
  2. Orange County (management funds, derivatives on financial securities, 1994)
  3. Barings (bank, forward contracts, 1995)
• 1997

  Credit Metrics
• 1997-1998 Asian and Russian crisis and LTCM collapse 2001 Enron bankruptcy 2002 New governance rules by Sarbanes-Oxley and NYSE 2004 Basel I
• 2001

  Enron bankruptcy
• 2002

  New governance rules by Sarbanes-Oxley and NYSE
• 2004

  Basel II
• 2007

  Beginning of the financial crisis
• 2009

  Starting of CDS central clearing operations
• 2010

  Basel III
• 2010

  Dodd-Frank Act for regulating the US financial markets (including the Volcker Rule)
• Dodd-Frank Act

  this is an act for regulating the US financial markets (including the Volcker Rule
• 2011-2013

  New rules for the govermance of risk management
• 2016

  Solvency II came into effec
• 2016

  CVR replaces VaR in Basel III regulation for market risk
• The term risk is frequently used as a synonym for "danger" or "hazards."
• Risk

  It describes the likelihood of an event's occurrence, usually with a negative connotation - especially in the context of subjects such as finance
• Risk

  can be defined as the likelihood of an event occurring as well as the magnitude of the event's negative impact
• Risk management

  can also improve the firm's capital structure, which suggests that companies in good financial health should use their information advantage to establish strategies to hedge future prices.
• The objective of risk management is to maximize firm or portfolio value via the reduction of costs associated with different risks.
• Market insurance

  a form of protection for losses related to pure risks that cannot be covered by the company.