Legal risk optimisation

In July 1993, the Group of Thirty cautioned that the greatest risk facing the derivatives industry was not market, credit or operational risk, but legal risk.1 Despite this warning, quantitatively the industry’s efforts have been on refining pricing models, designing market and credit risk models, and now even attempting to model operational risk. It appears to have devoted little or no resources towards modelling and measuring legal risk.

But the lack of a legal risk model should not be take