derivatives
Derivatives in Financial Market
Development
Rangarajan K. Sundaram
New York University (contact: rsundara@stern.nyu.edu)
(contact: )
February 2013
Derivatives in Financial Market Development
Rangarajan K. Sundaram
Stern School of Business, New York University http://pages.stern.nyu.edu/ rsundara
13 September 2012
Contents
Executive Summary
ii
1 Introduction
2
2 The World Derivatives Market
2
2.1
Basic Derivative Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
2.2
Market Size and Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
2.3
Emerging Markets versus Advanced Economies . . . . . . . . . . . . . . . . . .
7
3 Uses of Derivatives
9
4 The Potential Risks in Derivatives Usage
14
4.1
Barings Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
4.2
Metallgesellschaft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
4.3
Amaranth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
4.4
Aracruz Cellulose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17
4.5
AIG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18
4.6
Heeding the Lessons? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19
5 Derivatives in the Indian Context: Some Comments
20
6 Regulation and its Challenges
26
A Derivatives Instruments
30
A.1 Forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30
A.2 Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31
A.3 Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32
A.4 Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32
A.5 Credit Derivatives . . . . . . . . . . . . . . . . .
Development
Rangarajan K. Sundaram
New York University (contact: rsundara@stern.nyu.edu)
(contact: )
February 2013
Derivatives in Financial Market Development
Rangarajan K. Sundaram
Stern School of Business, New York University http://pages.stern.nyu.edu/ rsundara
13 September 2012
Contents
Executive Summary
ii
1 Introduction
2
2 The World Derivatives Market
2
2.1
Basic Derivative Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
2.2
Market Size and Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
2.3
Emerging Markets versus Advanced Economies . . . . . . . . . . . . . . . . . .
7
3 Uses of Derivatives
9
4 The Potential Risks in Derivatives Usage
14
4.1
Barings Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
4.2
Metallgesellschaft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
4.3
Amaranth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
4.4
Aracruz Cellulose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17
4.5
AIG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18
4.6
Heeding the Lessons? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19
5 Derivatives in the Indian Context: Some Comments
20
6 Regulation and its Challenges
26
A Derivatives Instruments
30
A.1 Forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30
A.2 Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31
A.3 Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32
A.4 Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32
A.5 Credit Derivatives . . . . . . . . . . . . . . . . .