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Are Derivatives Dangerous? A Literature Survey

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  • Gunther Capelle-Blancard

Abstract

In this paper, we propose a survey of the academic literature that has addressed the threats raised by derivatives. An initial issue is the impact of derivatives on the volatility of the underlying assets, but empirical findings do not suggest any significant effect. The recent literature on the dangers of derivatives is more concerned by systemic risks. Several studies suggest that the sophistication of the products and the concentration of risks are potential sources of instability because of the increasing uncertainty, the repeated occurrence of extreme losses, and finally the greater possibility of global crisis. Among the solutions that have been proposed to mitigate risk, beyond strengthening internal control, putting clearinghouses into general use and limiting naked-transactions seem to be the most promising avenues.

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File URL: http://www.cepii.fr/IE/rev123/ei123d.htm
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Bibliographic Info

Article provided by CEPII research center in its journal International Economics/Economie Internationale.

Volume (Year): (2010)
Issue (Month): 3Q ()
Pages: 67-90

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Handle: RePEc:cii:cepiei:2010-3td

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Keywords: Derivatives; forwards; futures; options; financial innovation; speculation; OTC markets; financial instability;

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Cited by:
  1. Gunther Capelle-Blancard & Dramane Coulibaly, 2011. "Index Trading and Agricultural Commodity Prices: A Panel Granger Causality Analysis," Working Papers 2011-28, CEPII research center.

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