The Risk Awards 2003

The fourth annual Risk awards recognise excellence and innovation in the risk management and over-the-counter derivatives businesses

Is risk management now mainstream? If the events of 2002 didn’t make it so, probably nothing will. But when the Wall Street Journal starts publishing feature articles about credit derivatives on its front page, as it did last year, it’s an indication that risk management issues have moved to the forefront of business thinking.

The tumultuous year certainly tested the mettle of even the most sophisticated dealers. Credit losses torpedoed many banks, skyrocketing interest rate volatility put pricing and hedging models to the test, and energy markets were a constant concern. A number of firms rose to the challenges, and Risk is pleased to have this opportunity to recognise their accomplishments.

But it’s fairly safe to say that the tools used to manage risk in 2002 would be far blunter instruments if not for the work of our lifetime achievement award winner, Robert Merton. The Nobel laureate’s contribution to the Black-Scholes option pricing formula gave traders an essential tool to understand and succeed in that burgeoning market in the 1970s. His insight that a company’s stock could be seen as an option on its assets launched a host of indispensable credit risk tools (one of which was developed by last year’s lifetime achievement winner, Oldrich Vasicek, at KMV) for portfolio managers and traders alike. He has been a strong advocate of tailored, integrated financial solutions for a range of risk management problems, and recently co-founded a firm to put that idea into practice.

Sweeping the boards this year is Deutsche Bank, which earns our derivatives house of the year, along with three of our core awards: interest rate derivatives, credit derivatives and commodity derivatives. The end-users Risk journalists interviewed for the awards lauded the German bank’s willingness to provide liquidity and make tight markets in difficult circumstances, its innovative products and its client focus. Deutsche also takes an award that debuts this year: equity derivatives research house of the year. A number of sophisticated firms have begun offering equity derivatives research in the past few years, as asset managers have become more comfortable trading volatility and have begun to look to the derivatives markets for clues about their cash investments. The asset managers we contacted rated Deutsche Bank’s product number one.

Otherwise, our award categories and approach remain largely the same as in past years. We base our product award decisions solely on the basis of interviews with a broad range of clients, and not on pitches provided by the dealers themselves. While this process wins us few friends – dealers rarely like the prospect of having journalists interrogate their clients – it is the best way to ensure our choices are the right ones.

Back to The Risk Awards 2003 Index