Derivatives The Wild Beast of Finance: A Path to Effective Globalisation?

Preface to the Revised Paperback Edition

Introduction

Part I A Look Back

1 Evolution of Finance

Venice, April 1470

1 The functions of finance

2 The first step towards managing financial risk: diversification and collateral

3 The second step towards managing financial risk: limited liability, bankruptcy laws, seniority rules, balance-sheet structure

4 The third step towards managing financial risk: creating tradable instruments and liquidity in organised markets

5 The final step towards managing financial risk: derivatives and financial engineering

6 Could the acceleration in financial innovation since 1970 have been predicted?

7 Conclusion

Notes

2 The Americanisation of Global Finance

Minnesota Banc Corporation

1 The emergence of the American model of finance

2 The crowning achievement: risk-management finance

3 Maintaining market liquidity: the sine qua non of the "American model"

4 Global finance: the result of exporting the "American model"

5 Conclusion

Notes

3 Dramatic Events

How George Soros sees it

1 The EMS crisis of 1992-93

2 Metallgesellschaft: in the red or in the black?

3 Barings: victim of high-leveraged speculation and loose controls

4 Bankers Trust: caveat emptor

5 David Askin: the fallen star of the mortgage-backed securities sky

6 Instability in emerging markets: Mexican tequila

7 Hedge funds and the collapse of LTCM

8 Conclusion

Notes

Part II Derivatives and Their Markets

4 The Revolution in Risk Management

Farming for the future

1 What can derivatives achieve?

2 Price discovery and volatility

3 Is risk management a fundamental corporate objective?

4 Risk management: science or fad?

5 Risk management: some examples

6 Conclusion

Notes

5 Mutualisation of Risk on Exchanges

Chicago's other side

1 Evolution of exchange-traded financial derivatives

2 Organisation of the exchanges

3 What makes a successful exchange-traded contract?

4 New product developments on the exchanges

5 Exchanges for a global market

6 Conclusion

Notes

6 Customised Risk Management in OTC Markets

How to lose money on a long put when markets crash

1 Market developments

2 Significant bank involvement

3 Contagion risk

4 Regulatory inadequacies for the specificities of OTC markets

5 New developments

6 Conclusion

Notes

Part III Public Policy Options

7 Are Derivatives a Threat to Global Financial Stability?

The global financial crash of October 2002

1 Systemic risk illustrated with the crises in Asia and Russia

2 Derivatives: the dynamite for financial crises

3 Global derivative finance: the fuse for contagion

4 Conclusion

Notes

8 Challenges for the Established Financial Order

The butterflies of finance

1 The classical paradigm of financial policy

2 Paradise lost

3 Reducing systemic risk: the Basle approach

4 Conclusion

Notes

9 A Financial Policy Model for the Next Century

The challenge of global money

1 Reform of the international financial system

2 The architecture for regulatory rethinking

3 Risk management through clearing-houses

4 Phasing out the banking franchise and institutional regulation

5 Redefining the relationship between central banks and financial intermediaries

6 Conclusion

Notes

Part IV A Look into the Future

10 Derivatives: the Future of Finance

Antofagasta (Chile), summer of 2020

1 The ascent of institutional investors

2 Ownership and corporate governance

3 Macro futures

4 Real estate futures

5 The end of banking?

6 Conclusion

Notes

11 Conclusions

1 The origin of the species

2 OTC versus exchange-traded contracts

3 Americanisation of global finance

4 Risk management: one of the most important innovations of the 20th century

5 Work of the devil or social benefit?

6 Financial structure in the 21st century

7 Shifts of power

8 Crystal ball gazing

Glossary

References

Index