scholarly journals Hedging in Financial Markets

1998 ◽  
Vol 28 (1) ◽  
pp. 5-16 ◽  
Author(s):  
Martin Baxter
Keyword(s):  
Financial Markets ◽  
Financial Products ◽  
Black Scholes ◽  
Expository Paper

AbstractThis (mostly) expository paper describes the importance of hedging to the pricing of modern financial products and how hedging may be achieved even when the traditional Black-Scholes assumptions are absent.

scholarly journals Risk Taking, Principal Agent Problems and Breakdown of Corporate Social Responsibility (CSR): How to Reestablish Safe-Assets and Capital Funding for Social Security?

Equilibrium ◽  
2013 ◽  
Vol 8 (2) ◽  
pp. 7-30 ◽  
Author(s):  
Hans-Georg Petersen ◽  
Alexander Martin Wiegelmann
Keyword(s):  
Financial Markets ◽  
Interest Rates ◽  
Financial Market ◽  
Debt Crisis ◽  
Principal Agent ◽  
Market Structures ◽  
Financial Products ◽  
Monetary System ◽  
Capital Funding ◽  
Corporate Social

The breakdown of the financial markets in fall 2007 and the following debt crisis in the EU has produced an enormous mistrust in financial products and the monetary system. The paper describes the background of the crisis induced by functional failures in risk management and the multifold principal agent problems existing in the financial market structures. The innovated nontransparent financial products have mixed up different risk weights and puzzled, or even fooled formerly loyal customers. Contemporaneously abundant liquidity on the international financial market accompanied by easy money policies of the Fed in the US and the ECB in the euro zone have depressed the real interest rate to zero or even negative values. Desperate investors are seeking for safe-assets, but their demand remains unsatisfied. Low real interest rates and the consequently lacking compound interest effect in the same time jeopardize private as well as public insurance schemes being dependent on capital funding: the demographic crisis becomes gloomy. Therefore, the managers of the financial markets have to reestablish CSR and to divide the markets into safe-asset areas for the usual clients and “casino” areas for those who like to play with high risks. Only with transparency and risk adequate financial products can the lost commitment be regained.

Financial markets as commensurating machines

2019 ◽  
Vol 58 (4) ◽  
pp. 539-565
Author(s):  
Barbara Kuchler
Keyword(s):  
Financial Markets ◽  
Capital Markets ◽  
Capital Market ◽  
Capital Flows ◽  
Financial System ◽  
Financial Assets ◽  
Financial Instruments ◽  
Black Scholes ◽  
Derivatives Markets

Ever since the crisis of 2008, the dynamism and self-referentiality of financial markets have puzzled observers. This article argues that this dynamism is the product of a long process of commensuration, by which ever more heterogeneous financial assets and financial instruments have come to be compared with, substituted for, and valuated relatively to one another, and have thereby been condensed into a highly interconnected financial system. This trajectory can be found both in the long-term historical emergence of financial markets from ancient origins and in the more recent transformations of the financial system since the 1970s, including (i) the rise of derivatives markets, and (ii) the rise of capital markets as against bank-intermediated capital flows. The rise of derivatives markets was triggered by the commensuration of basic securities (such as stock, bond) and derivatives (such as options, futures), established by the Black-Scholes-Merton theory of option pricing. The rise of capital markets was rooted in the commensuration – and hence, competition and substitution – of bank products (such as loans, deposits) and non-bank products (capital market securities).

scholarly journals Sustainable Financial Products in the Latin America Banking Industry: Current Status and Insights

2020 ◽  
Vol 12 (14) ◽  
pp. 5648
Author(s):  
Juan Camilo Mejia-Escobar ◽  
Juan David González-Ruiz ◽  
Eduardo Duque-Grisales
Keyword(s):  
Latin America ◽  
Financial Markets ◽  
Banking Industry ◽  
Research Trends ◽  
Government Support ◽  
Current Status ◽  
Research Papers ◽  
Financial Products ◽  
The Status ◽  
Sustainable Financing

The purpose of this study is to analyse the extant literature on sustainable financial products (SFP) with a comprehensive understanding of the status quo and research trends as well as characterise the existing SFP in the Latin America banking industry. In this way, research papers derived from Scopus as well as institutional reports such as main documents, sustainability reports, and product portfolios publicly available on webpages from public, private, and development banks are used to create a database of SFP where their main characteristics are included and classified. Based on the research trends identified, the results show the development of financial products focused on environmental, social, and government (ESG) matters, mainly from the credit side, of more sustainable financial markets and products under fintech ecosystems. The results show that because of regulatory and government support through mechanisms such as green protocols and social and environmental responsibility policies, private financial institutions of Brazil, Colombia, and Argentina have led the development of both social and green financial products. These study’s findings may be used for several policymakers to broaden the opportunities available in sustainable financing and thus, provide a roadmap that researchers and practicing professionals can use to improve their understanding of SFP. Finally, the study presents the potential for further research in the field, both with a qualitative and a quantitative approach.

Ceci n’est pas un Capital Markets Union: Re-establishing EU-led financialization

2020 ◽  
Vol 24 (3-4) ◽  
pp. 248-267
Author(s):  
Nina Haerter
Keyword(s):  
Financial Markets ◽  
Capital Markets ◽  
Market Integration ◽  
Policy Documents ◽  
Policy Initiatives ◽  
Financial Products ◽  
Capital Markets Union ◽  
The Many ◽  
Integration Project ◽  
The Eu

In the 11 years since the outbreak of the financial crisis, the EU has introduced many policy initiatives directed at the financial sector, the most recent one being the Capital Markets Union. The official aim is to integrate Europe’s financial markets, fulfilling decades-old wishes for a Single Market for capital. Some scholars have already voiced concerns about different elements of Capital Markets Union since its inception in 2015, but the extent to which this critique was generalizable remained unclear. Through an analysis of policy documents and interview data inspired by the ‘What’s the Problem Represented to be?’-approach, this paper reveals two common threads among the many Capital Markets Union proposals, which are not explicitly acknowledged: a reduction of prudential rules and various forms of incentivizing financial products with public funds. It is therefore argued that Capital Markets Union is not a market integration project (as its name and official narrative suggest), as much as it is the re-establishment of EU-led financialization, following a long tradition of asymmetrical integration in the Union.

scholarly journals Exploitation of Information as a Trading Characteristic: A Causality-Based Analysis of Simulated and Financial Data

Entropy ◽  
2020 ◽  
Vol 22 (10) ◽  
pp. 1139
Author(s):  
Catherine Kyrtsou ◽  
Christina Mikropoulou ◽  
Angeliki Papana
Keyword(s):  
Financial Markets ◽  
Empirical Evidence ◽  
Information Flow ◽  
Diffusion Mechanism ◽  
Trading Strategies ◽  
Financial Data ◽  
Financial Products ◽  
Resulting Effect ◽  
Causality Tests ◽  
Multivariate Systems

In financial markets, information constitutes a crucial factor contributing to the evolution of the system, while the presence of heterogeneous investors ensures its flow among financial products. When nonlinear trading strategies prevail, the diffusion mechanism reacts accordingly. Under these conditions, information englobes behavioral traces of traders’ decisions and represents their actions. The resulting effect of information endogenization leads to the revision of traders’ positions and affects connectivity among assets. In an effort to investigate the computational dimensions of this effect, we first simulate multivariate systems including several scenarios of noise terms, and then we apply direct causality tests to analyze the information flow among their variables. Finally, empirical evidence is provided in real financial data.

Bureau of Consumer Financial Protection

2019 ◽  
pp. 65-80 ◽  
Author(s):  
Alan N. Rechtschaffen
Keyword(s):  
Financial Markets ◽  
Consumer Protection ◽  
Judicial Review ◽  
Federal Reserve ◽  
Financial Protection ◽  
Title X ◽  
Financial Products ◽  
Consumer Interests ◽  
And Function ◽  
Reserve System

Under Dodd-Frank’s Title X, the Consumer Financial Protection Act of 2010 (CFPA), Congress established an independent Bureau of Consumer Financial Protection in the Federal Reserve System (originally branded the “CFPB” or “Consumer Financial Protection Bureau” and subsequently dubbed the “BCFP” or “Bureau of Consumer Financial Protection” in accord with its legislated name. The BCFP is tasked with protecting consumer interests in financial markets. Specifically, the Bureau aims to ensure that all customers have access to markets for consumer financial products and services in a fair, transparent, and competitive way. The CFPA authorizes the Bureau to uniformly regulate, supervise, and enforce the provisions of consumer financial products or services under federal consumer financial law. This chapter discusses the structure of the CFPA, roles and function of the BCFP, significant changes in financial consumer protection by the BCFP, judicial review of BCFP’s power, and the BCFP under President Trump's administration.

scholarly journals Pricing Various Types of Power Options under Stochastic Volatility

Symmetry ◽  
2020 ◽  
Vol 12 (11) ◽  
pp. 1911
Author(s):  
Youngrok Lee ◽  
Yehun Kim ◽  
Jaesung Lee
Keyword(s):  
Financial Markets ◽  
Stochastic Volatility ◽  
Asset Price ◽  
Stochastic Volatility Model ◽  
Exotic Options ◽  
Option Prices ◽  
Black Scholes Model ◽  
Volatility Model ◽  
Black Scholes ◽  
Pricing Power

The exotic options with curved nonlinear payoffs have been traded in financial markets, which offer great flexibility to participants in the market. Among them, power options with the payoff depending on a certain power of the underlying asset price are widely used in markets in order to provide high leverage strategy. In pricing power options, the classical Black–Scholes model which assumes a constant volatility is simple and easy to handle, but it has a limit in reflecting movements of real financial markets. As the alternatives of constant volatility, we focus on the stochastic volatility, finding more exact prices for power options. In this paper, we use the stochastic volatility model introduced by Schöbel and Zhu to drive the closed-form expressions for the prices of various power options including soft strike options. We also show the sensitivity of power option prices under changes in the values of each parameter by calculating the resulting values obtained from the formulas.

scholarly journals Asymptotic synthesis of contingent claims with controlled risk in a sequence of discrete‐time markets

2021 ◽  
Vol 16 (1) ◽  
pp. 25-47
Author(s):  
David M. Kreps ◽  
Walter Schachermayer
Keyword(s):  
Financial Markets ◽  
Discrete Time ◽  
Continuous Time ◽  
Contingent Claims ◽  
Contingent Claim ◽  
Complete Markets ◽  
Continuous Time Model ◽  
Time Model ◽  
Black Scholes ◽  
Discrete Time Models

We examine the connection between discrete‐time models of financial markets and the celebrated Black–Scholes–Merton (BSM) continuous‐time model in which “markets are complete.” Suppose that (a) the probability law of a sequence of discrete‐time models converges to the law of the BSM model and (b) the largest possible one‐period step in the discrete‐time models converges to zero. We prove that, under these assumptions, every bounded and continuous contingent claim can be asymptotically synthesized, controlling for the risks taken in a manner that implies, for instance, that an expected‐utility‐maximizing consumer can asymptotically obtain as much utility in the (possibly incomplete) discrete‐time economies as she can at the continuous‐time limit. Hence, in economically significant ways, many discrete‐time models with frequent trading resemble the complete‐markets model of BSM.

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