The Origin of Financial Risk Management

The emergence and development of financial risk management mainly benefit from the following three reasons: First, in the past 30 years, the environment and rules of the world economy and financial market have undergone tremendous changes. The frequent occurrence of large fluctuations in financial markets has given birth to the demand for financial risk management theories and tools; Secondly, the development of economics, especially financial theory, has laid a solid theoretical foundation for financial risk management; Finally, the rapid development of computer software and hardware technology provides strong technical support and guarantee for risk management. The changes in the world economic environment are mainly manifested in the following two aspects: First, after the Second World War, the wave of world economic integration swept the world. The economic openness of all countries in the world is gradually increasing, and the economic development and economic policy formulation of any country are restricted by the external economic environment; Secondly, in the early 1970s, the collapse of the Bretton Woods system declared the decline of the worldwide fixed exchange rate system. Since then, companies and individuals have to face various financial risks, such as exchange rate risk. Especially in the last ten years, several large-scale financial crises that shocked the world broke out, such as 1987 American "Black Monday" stock market crash, 1997 Asian financial turmoil and so on. These events have caused great damage to the healthy development of the world economy and financial markets, and people have also realized the necessity and urgency of financial risk management.

Since 1970s, neoclassical economics has occupied the mainstream position in economic research. Neoclassical economics has established a set of economic analysis framework based on information and uncertainty, which makes people re-examine the traditional theory and model of economic development. At the same time, after 1960s, the status of finance as an independent discipline was established-FJ. During this period, a large number of classical financial theories and models were widely accepted and used by financial theorists and practitioners. For example, in 1960s, Eugene Fama, william sharpe and John lintner, known as the "fathers of efficient capital markets", established the Capital Asset Pricing Model, stephen ross's Arbitrage Pricing Model and Black-Scholes Option Pricing Model. The establishment of the above economic and financial theories has laid a solid theoretical foundation for the development of financial risk management theories and tools. With the rapid development of computer hardware technology and software development ability, people have been able to solve various financial risk management problems by means of mathematical model and simulation, which directly led to the emergence and development of a new discipline-"financial engineering" in the 1980s. There are many kinds of financial risks. According to different standards, financial risks can be divided into the following categories:

(1) According to the source of financial risk, it includes static financial risk and dynamic financial risk. Static financial risk refers to the risk caused by natural disasters or other force majeure, which basically conforms to the law of large numbers and is highly predictable. Dynamic financial risk is a risk caused by the change of macroeconomic environment, and its probability of occurrence and the impact of each occurrence change with time, so it is difficult to make an accurate prediction.

(2) According to the scope of financial risks, including micro-financial risks and macro-financial risks. Micro-financial risk refers to the possibility that the main body participating in economic activities will suffer losses of assets and reputation due to changes in objective environment, mistakes in decision-making or other reasons. Macro financial risk is the sum of all micro financial risks.

(3) Classification by financial institutions, including banking risk, securities risk, insurance risk and trust risk.