History and Trends
History
From the Dojima rice exchange to the Black–Scholes model, the growth of the swap market, and events such as the collapse of LTCM and Lehman Brothers.
Introductory13 pages
1Origins and Market Development
- IntroductoryThe Dojima Rice ExchangeThe Dojima Rice Exchange came into being when the Edo shogunate officially approved the rice market in Dojima, Osaka.
- IntroductoryThe Development of Futures ExchangesThe Chicago Board of Trade (CBOT) built trading rules and a clearinghouse and grew into a futures exchange.
- IntroductoryThe Arrival of Black-ScholesBefore the paper, option valuation struggled with how to set the risk premium that matches the movement of the stock price.
- IntroductoryThe Swap Market and ISDACurrency swaps grew out of parallel loans and back-to-back loans in the United Kingdom, and gained some recognition through the World Bank and IBM transaction.
- IntroductoryA History of Japan's Derivatives MarketThe history of listed derivatives can be traced from the start of trading in long-term JGB futures at the Tokyo Stock Exchange.
2Major Events
- IntroductoryThe Collapse of LTCMFourteen of LTCM's counterparties invested in the fund and recapitalized it.
- IntroductoryThe Collapse of Lehman Brothers (2008)Lehman Brothers Holdings Inc. filed for Chapter 11 of the U.S. Bankruptcy Code.
- IntroductoryThe LIBOR Manipulation ScandalLIBOR was a benchmark rate compiled from rates that panel banks submitted every day, and the submissions rested on each bank's judgment.
- IntroductoryOther Major Derivatives LossesThe cause of the Metallgesellschaft loss is disputed between hedge design and funding.
- IntroductoryThe Metallgesellschaft Loss (1993)MG was effectively bankrupt after losses in its US subsidiary's oil business.
- IntroductoryThe Orange County Investment Pool Loss (1994)The investment pool, enlarged to about 2.7 times the original investment by borrowing, lost money when interest rates rose and filed for bankruptcy.
- IntroductoryThe JPMorgan London Whale Credit Derivatives Loss (2012)The net notional size of a credit derivatives portfolio grew sharply, and the portfolio lost at least USD 6.2 billion.
- IntroductoryBank Losses from the Archegos Default (2021)The Archegos default caused losses of over USD 10 billion at several large banks.