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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.

Suggested Citation

  • Gunther Capelle-Blancard, 2010. "Are Derivatives Dangerous? A Literature Survey," International Economics, CEPII research center, issue 123, pages 67-89.
    • Handle: RePEc:cii:cepiie:2010-q3-123-4
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    1. Gunther Capelle-Blancard, 2003. "Marchés dérivés et trading de volatilité," Revue économique, Presses de Sciences-Po, vol. 54(3), pages 663-673.
    2. Robert Jarrow, 2017. "Derivatives," World Scientific Book Chapters, in: THE ECONOMIC FOUNDATIONS OF RISK MANAGEMENT Theory, Practice, and Applications, chapter 3, pages 19-28, World Scientific Publishing Co. Pte. Ltd..
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    Cited by:

    1. Keffala, Mohamed Rochdi, 2015. "How using derivatives affects bank stability in emerging countries? Evidence from the recent financial crisis," Research in International Business and Finance, Elsevier, vol. 35(C), pages 75-87.
    2. Lannoo, Karel & Thomadakis, Apostolos, 2020. "Derivatives in Sustainable Finance," ECMI Papers 29791, Centre for European Policy Studies.
    3. Gunther Capelle-Blancard & Dramane Coulibaly, 2011. "Index trading and agricultural commodity prices: A panel Granger causality analysis," International Economics, CEPII research center, issue 126-127, pages 51-71.
    4. Mohamed Rochdi Keffala, 2017. "Are Derivatives Implicated in the Recent Financial Crisis? Evidence from Banks in Emerging Countries," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 20(01), pages 1-41, March.
    5. Philip W. S. Newall & Leonardo Weiss-Cohen, 2022. "The Gamblification of Investing: How a New Generation of Investors Is Being Born to Lose," IJERPH, MDPI, vol. 19(9), pages 1-10, April.

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    More about this item

    Keywords

    Derivatives; Forwards; Futures; Financial innovation; Speculation; OTC markets; Financial instability;
    All these keywords.

    JEL classification:

    • A1 - General Economics and Teaching - - General Economics
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G1 - Financial Economics - - General Financial Markets

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