Risk Management and Derivatives

Nicholas P. Sargen ()
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Nicholas P. Sargen: Nicholas Sargen Advisory LLC

Chapter 14 in JPMorgan’s Fall and Revival, 2020, pp 137-149 from Springer

Abstract: Abstract One area in which Morgan had considerable expertise was the application of risk management procedures. Weatherstone’s goal was to understand how vulnerable Morgan’s positions were to market fluctuations and how much capital the bank should hold. In 1989, a novel practice was introduced known as the “4:15” report that quantified the amount of risk the bank was running in its business lines at the end of each day. In 1992, Morgan launched a methodology called RiskMetrics to the marketplace. Morgan was also involved in the creation of financial derivatives that could be used to hedge against adverse price movements or to speculate on price swings. In 1994, the derivatives unit headed by Peter Hancock pioneered the development of credit default swaps, tradable instruments that financial institutions could deploy to reduce credit risks on loans. During the 2008 Financial Crisis, critics claimed this practice exacerbated the crisis. However, Morgan understood the risks and emerged in better shape than its rivals.

Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-47058-6_14

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DOI: 10.1007/978-3-030-47058-6_14

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