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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

[2]

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

[3]

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

[4]

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

[5]

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

[6]

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

[7]

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

[8]

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

[9]

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

[10]

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

[11]

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

[12]

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

[13]

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

[14]

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

[15]

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

[16]

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

[17]

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

[18]

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

[19]

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

[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

[21]

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

[22]

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

[23]

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

[24]

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

[25]

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

[26]

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

[27]

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

[28]

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

[29]

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

[30]

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

[31]

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

[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

[33]

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

[34]

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

[35]

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

[36]

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

[37]

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

[38]

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

[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)

[40]

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

[41]

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

[42]

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

[43]

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

[44]

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

[45]

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

[46]

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

[47]

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

[48]

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

[49]

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

[50]

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

[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)

[52]

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

[53]

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

show all references

References:
[1]

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

[2]

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

[3]

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

[4]

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

[5]

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

[6]

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

[7]

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

[8]

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

[9]

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

[10]

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

[11]

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

[12]

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

[13]

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

[14]

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

[15]

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

[16]

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

[17]

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

[18]

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

[19]

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

[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

[21]

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

[22]

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

[23]

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

[24]

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

[25]

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

[26]

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

[27]

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

[28]

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

[29]

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

[30]

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

[31]

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

[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

[33]

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

[34]

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

[35]

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

[36]

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

[37]

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

[38]

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

[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)

[40]

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

[41]

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

[42]

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

[43]

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

[44]

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

[45]

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

[46]

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

[47]

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

[48]

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

[49]

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

[50]

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

[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)

[52]

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

[53]

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

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