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January  2017, 2: 6 doi: 10.1186/s41546-017-0018-3

A brief history of quantitative finance

Mauro Cesa

Risk. net, London, UK

Received  February 15, 2017 Revised  April 19, 2017 Published  September 2017

In this introductory paper to the issue, I will travel through the history of how quantitative finance has developed and reached its current status, what problems it is called to address, and how they differ from those of the pre-crisis world.
Citation: Mauro Cesa. A brief history of quantitative finance. Probability, Uncertainty and Quantitative Risk, 2017, 2 (0) : 6-. doi: 10.1186/s41546-017-0018-3
References:
[1]

Acerbi, C., Székely, B.:Back-testing expected shortfall. (2014). Risk December, www.risk.net/2381658 Google Scholar

[2]

Albanese, C., Andersen, L., Iabichino, S.:FVA accounting, risk management and collateral trading. (2015).Risk February, www.risk.net/2392762 Google Scholar

[3]

Albanese, C., Caenazzo, S., Crépey, S.:Capital and funding. (2016). Risk May, www.risk.net/2456382 Google Scholar

[4]

Antonov, A., Konikov, M., Spector, M.:The free boundary SABR:natural extension to negative rates.(2015). Risk September, www.risk.net/2423287 Google Scholar

[5]

Bachelier, L.:Théorie de la spéculation. Ann. Sci. l'École Norm. Supér. 3(17), 21-86 (1900) Google Scholar

[6]

Barker, R., Dickinson, A., Lipton, A., Virmani, R.:Systemic risk in CCP networks. (2017). Risk January, www.risk.net/2479766 Google Scholar

[7]

Becker L.:BAML takes $497m FVA loss. Risk January www.risk.net/2390522 (2015a). Google Scholar

[8]

Becker, L.:Morgan Stanley takes $468m FVA loss. Risk January, www.risk.net/2391661 (2015b) Google Scholar

[9]

Bergomi, L.:Smile dynamics. (2004). Risk September, www.risk.net/1530377 Google Scholar

[10]

Bergomi, L.:Smile dynamics II. (2005). Risk October, www.risk.net/1500225 Google Scholar

[11]

Bergomi, L.:Smile dynamics III. (2008). Risk October, www.risk.net/1500216 Google Scholar

[12]

Bergomi, L.:Smile dynamics IV. (2009). Risk December, www.risk.net/1564129 Google Scholar

[13]

Bianchetti, M.:Two curves, one price. (2010). Risk August, www.risk.net/1724866 Google Scholar

[14]

Black, F., Scholes, M.:The pricing of options and corporate liabilities. J Pol Econ 81(3), 637-654 (1973) Google Scholar

[15]

Bollerslev, T.:Generalized autoregressive conditional heteroscedasticity. J Econ 31, 307-327 (1986) Google Scholar

[16]

Borovkova, S., El Mouttalibi, H.L.:Systemic risk and centralized clearing of OTC derivative:a network approach. (2013). Preprint, SSRN id 2334251 Google Scholar

[17]

Brigo, D., Capponi, A.:Bilateral counterparty risk with application to CDSs. (2010). Risk March, www.risk.net/1594872 Google Scholar

[18]

Burgard, C., Kjaer, M.:Funding strategies, funding costs. (2013). Risk December, www.risk.net/2310207 Google Scholar

[19]

Burgard, C., Kjaer, M.:Derivatives funding, netting and accounting. (2017). Risk March, www.risk.net/3964311 Google Scholar

[20]

Burgard, C and M Kjaer.:Partial differential equation representations of derivatives with bilateral counterparty risk and funding costs. J. Credit. Risk (2011a) September, www.risk.net/2160718 Google Scholar

[21]

Burgard, C., Kjaer, M.:In the balance. (2011b). Risk November, www.risk.net/2119547 Google Scholar

[22]

Cameron, M.:JP Morgan takes $1.5 billion FVA loss. Risk January, www.risk.net/2322843 (2014) Google Scholar

[23]

Capriotti L., Giles M.:Fast correlation Greeks by adjoint algorithmic differentiation. (2010). Risk April, www.risk.net/1598655 Google Scholar

[24]

Capriotti, L., Lee, J., Peacock, M.:Real-time counterparty credit risk management in Monte Carlo. (2011).Risk June, www.risk.net/2073092 Google Scholar

[25]

Carver, L.:Show me the money:banks explore DVA hedging. (2012). Risk March, www.risk.net/2155175 Google Scholar

[26]

Cont, R., Wagalath, L.:Risk management for whales. (2016). Risk May, www.risk.net/2459496 Google Scholar

[27]

Crépey, S., Douady, R.:Lois:credit and liquidity. (2013). Risk June, www.risk.net/2269615 Google Scholar

[28]

Day, S, Degree of influence.:Capital matters. Risk December, www.risk.net/2478608 (2016) Google Scholar

[29]

Duffie, D., Zhu, H.:Does a central clearing counterparty reduce counterparty risk? Rev. Asset Pricing Stud. 1(1), 74-95 (2011) Google Scholar

[30]

Dupire, B.:Pricing with a smile. Risk January. 18-20 (1994) Google Scholar

[31]

Engle, R.:Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom inflation. Econometrica 50(4), 987-1008 (1982) Google Scholar

[32]

Fissler, T., Ziegel, J., Gneiting, T.:Expected shortfall is jointly elicitable with value-at-risk:implications for backtesting. (2016). Risk January, www.risk.net/2439862 Google Scholar

[33]

Fujii M., Takahashi a. Choice of collateral currency. (2011). Risk January, www.risk.net/1935412 Google Scholar

[34]

Giles, M., Glasserman, P.:Smoking adjoints:fast Monte Carlo Greeks. (2006). Risk January, www.risk.net/1500261 Google Scholar

[35]

Green, A.:XVA:Credit Funding and Capital Valuation Adjustments. Wiley (2016) Google Scholar

[36]

Green, A., Kenyon, C.:MVA by replication and regression. (2015). Risk April, www.risk.net/2405264 Google Scholar

[37]

Gregory, J.:Being two-faced over counterparty credit risk. (2009). Risk February, www.risk.net/1500212 Google Scholar

[38]

Hagan P., Kumar D., Lesniewski A., Woodward D.:Managing smile risk. (2002). Wilmott magazine, September, 84-108 Google Scholar

[39]

Heston, S.:A closed form solution for options with stochastic volatility with applications to bond and currency options. Rev. Financ. Stud. 6327-343 (1993) Google Scholar

[40]

Hull, J., White, A.:The FVA debate continues:Hull and White respond to their critics. (2012a). Risk, October 2012, www.risk.net/2213407 Google Scholar

[41]

Hull, J., White, A.:The FVA debate. (2012b). Risk August, www.risk.net/2188684 Google Scholar

[42]

Langnau, A.:A dynamic model for correlation. (2010). Risk March, www.risk.net/1598652 Google Scholar

[43]

Laughton, S., Vaisbrot, A.:In defence of FVA. (2012). Risk September, www.risk.net/2202189 Google Scholar

[44]

Mercurio, F.:A Libor market model with a stochastic basis. (2010). Risk December, www.risk.net/1929219 Google Scholar

[45]

Mercurio, F and Z Xie,:The basis goes stochastic. (2012). Risk December, www.risk.net/2229765 Google Scholar

[46]

Merton, R.:On the pricing of corporate debt:the risk structure of interest rates. J. Financ. 29(2), 449-470 (1974) Google Scholar

[47]

Osborn, T.:Three months left:dealers fret over slow start to Simm tests. (2016). Risk June, www.risk.net/2460596 Google Scholar

[48]

Rennison, J.:Citi takes $474 million FVA charge. (2014) Risk October, www.risk.net/2375798. Google Scholar

[49]

Rheinlaender, R.:Pricing and hedging variance swaps on a swap rate. (2015). Risk January, www.risk.net/2388868 Google Scholar

[50]

Sherif, N.:AAD vs GPUs:banks turn to maths trick as chips lose appeal. (2015). Risk January, www.risk.net/2389945 Google Scholar

[51]

Thiele TN.:Om Anvendelse af mindste Kvadraters Methode i nogle Tilfælde, hvor en Komplikation af visse Slags uensartede tilfældige Fejlkilder giver Fejlene en ‘systematisk’ Karakter. Det Kongelige Danske Videnskabernes Selskabs Skrifter-Naturvidenskabelig og Mathematisk Afdeling. 381-408(1880) Google Scholar

[52]

Vladimir P.:Funding beyond discounting:collateral agreements and derivatives pricing. (2010), Risk February, www.risk.net/1589992 Google Scholar

[53]

Zetocha, V.:Correlation skew via stochastic correlation and jumps. (2015). Risk December, www.risk.net/2437508 Google Scholar

show all references

References:
[1]

Acerbi, C., Székely, B.:Back-testing expected shortfall. (2014). Risk December, www.risk.net/2381658 Google Scholar

[2]

Albanese, C., Andersen, L., Iabichino, S.:FVA accounting, risk management and collateral trading. (2015).Risk February, www.risk.net/2392762 Google Scholar

[3]

Albanese, C., Caenazzo, S., Crépey, S.:Capital and funding. (2016). Risk May, www.risk.net/2456382 Google Scholar

[4]

Antonov, A., Konikov, M., Spector, M.:The free boundary SABR:natural extension to negative rates.(2015). Risk September, www.risk.net/2423287 Google Scholar

[5]

Bachelier, L.:Théorie de la spéculation. Ann. Sci. l'École Norm. Supér. 3(17), 21-86 (1900) Google Scholar

[6]

Barker, R., Dickinson, A., Lipton, A., Virmani, R.:Systemic risk in CCP networks. (2017). Risk January, www.risk.net/2479766 Google Scholar

[7]

Becker L.:BAML takes $497m FVA loss. Risk January www.risk.net/2390522 (2015a). Google Scholar

[8]

Becker, L.:Morgan Stanley takes $468m FVA loss. Risk January, www.risk.net/2391661 (2015b) Google Scholar

[9]

Bergomi, L.:Smile dynamics. (2004). Risk September, www.risk.net/1530377 Google Scholar

[10]

Bergomi, L.:Smile dynamics II. (2005). Risk October, www.risk.net/1500225 Google Scholar

[11]

Bergomi, L.:Smile dynamics III. (2008). Risk October, www.risk.net/1500216 Google Scholar

[12]

Bergomi, L.:Smile dynamics IV. (2009). Risk December, www.risk.net/1564129 Google Scholar

[13]

Bianchetti, M.:Two curves, one price. (2010). Risk August, www.risk.net/1724866 Google Scholar

[14]

Black, F., Scholes, M.:The pricing of options and corporate liabilities. J Pol Econ 81(3), 637-654 (1973) Google Scholar

[15]

Bollerslev, T.:Generalized autoregressive conditional heteroscedasticity. J Econ 31, 307-327 (1986) Google Scholar

[16]

Borovkova, S., El Mouttalibi, H.L.:Systemic risk and centralized clearing of OTC derivative:a network approach. (2013). Preprint, SSRN id 2334251 Google Scholar

[17]

Brigo, D., Capponi, A.:Bilateral counterparty risk with application to CDSs. (2010). Risk March, www.risk.net/1594872 Google Scholar

[18]

Burgard, C., Kjaer, M.:Funding strategies, funding costs. (2013). Risk December, www.risk.net/2310207 Google Scholar

[19]

Burgard, C., Kjaer, M.:Derivatives funding, netting and accounting. (2017). Risk March, www.risk.net/3964311 Google Scholar

[20]

Burgard, C and M Kjaer.:Partial differential equation representations of derivatives with bilateral counterparty risk and funding costs. J. Credit. Risk (2011a) September, www.risk.net/2160718 Google Scholar

[21]

Burgard, C., Kjaer, M.:In the balance. (2011b). Risk November, www.risk.net/2119547 Google Scholar

[22]

Cameron, M.:JP Morgan takes $1.5 billion FVA loss. Risk January, www.risk.net/2322843 (2014) Google Scholar

[23]

Capriotti L., Giles M.:Fast correlation Greeks by adjoint algorithmic differentiation. (2010). Risk April, www.risk.net/1598655 Google Scholar

[24]

Capriotti, L., Lee, J., Peacock, M.:Real-time counterparty credit risk management in Monte Carlo. (2011).Risk June, www.risk.net/2073092 Google Scholar

[25]

Carver, L.:Show me the money:banks explore DVA hedging. (2012). Risk March, www.risk.net/2155175 Google Scholar

[26]

Cont, R., Wagalath, L.:Risk management for whales. (2016). Risk May, www.risk.net/2459496 Google Scholar

[27]

Crépey, S., Douady, R.:Lois:credit and liquidity. (2013). Risk June, www.risk.net/2269615 Google Scholar

[28]

Day, S, Degree of influence.:Capital matters. Risk December, www.risk.net/2478608 (2016) Google Scholar

[29]

Duffie, D., Zhu, H.:Does a central clearing counterparty reduce counterparty risk? Rev. Asset Pricing Stud. 1(1), 74-95 (2011) Google Scholar

[30]

Dupire, B.:Pricing with a smile. Risk January. 18-20 (1994) Google Scholar

[31]

Engle, R.:Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom inflation. Econometrica 50(4), 987-1008 (1982) Google Scholar

[32]

Fissler, T., Ziegel, J., Gneiting, T.:Expected shortfall is jointly elicitable with value-at-risk:implications for backtesting. (2016). Risk January, www.risk.net/2439862 Google Scholar

[33]

Fujii M., Takahashi a. Choice of collateral currency. (2011). Risk January, www.risk.net/1935412 Google Scholar

[34]

Giles, M., Glasserman, P.:Smoking adjoints:fast Monte Carlo Greeks. (2006). Risk January, www.risk.net/1500261 Google Scholar

[35]

Green, A.:XVA:Credit Funding and Capital Valuation Adjustments. Wiley (2016) Google Scholar

[36]

Green, A., Kenyon, C.:MVA by replication and regression. (2015). Risk April, www.risk.net/2405264 Google Scholar

[37]

Gregory, J.:Being two-faced over counterparty credit risk. (2009). Risk February, www.risk.net/1500212 Google Scholar

[38]

Hagan P., Kumar D., Lesniewski A., Woodward D.:Managing smile risk. (2002). Wilmott magazine, September, 84-108 Google Scholar

[39]

Heston, S.:A closed form solution for options with stochastic volatility with applications to bond and currency options. Rev. Financ. Stud. 6327-343 (1993) Google Scholar

[40]

Hull, J., White, A.:The FVA debate continues:Hull and White respond to their critics. (2012a). Risk, October 2012, www.risk.net/2213407 Google Scholar

[41]

Hull, J., White, A.:The FVA debate. (2012b). Risk August, www.risk.net/2188684 Google Scholar

[42]

Langnau, A.:A dynamic model for correlation. (2010). Risk March, www.risk.net/1598652 Google Scholar

[43]

Laughton, S., Vaisbrot, A.:In defence of FVA. (2012). Risk September, www.risk.net/2202189 Google Scholar

[44]

Mercurio, F.:A Libor market model with a stochastic basis. (2010). Risk December, www.risk.net/1929219 Google Scholar

[45]

Mercurio, F and Z Xie,:The basis goes stochastic. (2012). Risk December, www.risk.net/2229765 Google Scholar

[46]

Merton, R.:On the pricing of corporate debt:the risk structure of interest rates. J. Financ. 29(2), 449-470 (1974) Google Scholar

[47]

Osborn, T.:Three months left:dealers fret over slow start to Simm tests. (2016). Risk June, www.risk.net/2460596 Google Scholar

[48]

Rennison, J.:Citi takes $474 million FVA charge. (2014) Risk October, www.risk.net/2375798. Google Scholar

[49]

Rheinlaender, R.:Pricing and hedging variance swaps on a swap rate. (2015). Risk January, www.risk.net/2388868 Google Scholar

[50]

Sherif, N.:AAD vs GPUs:banks turn to maths trick as chips lose appeal. (2015). Risk January, www.risk.net/2389945 Google Scholar

[51]

Thiele TN.:Om Anvendelse af mindste Kvadraters Methode i nogle Tilfælde, hvor en Komplikation af visse Slags uensartede tilfældige Fejlkilder giver Fejlene en ‘systematisk’ Karakter. Det Kongelige Danske Videnskabernes Selskabs Skrifter-Naturvidenskabelig og Mathematisk Afdeling. 381-408(1880) Google Scholar

[52]

Vladimir P.:Funding beyond discounting:collateral agreements and derivatives pricing. (2010), Risk February, www.risk.net/1589992 Google Scholar

[53]

Zetocha, V.:Correlation skew via stochastic correlation and jumps. (2015). Risk December, www.risk.net/2437508 Google Scholar

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