Financial Derivatives And Risk Adverse

With rapid development of economy and financial globalization, together withacceleration of the international financial capital flows, the financial derivatives getextraordinary development. The financial derivatives as the important means of riskmanagement become noticeable gradually with financial liberalization and innovation.According to the Statistics from the Bank for International Settlements (BIS), the trend ofthe financial derivatives transaction is upward since 1990s. The unliquidated contracts offinancial derivatives in the organized exchange markets amounted to the US﹩3520billion in 1991, and went up sharply to US﹩23880 billion in 2002, so the rate of increasereached 578%, while those in OTC markets amounted to the US﹩140000 billion. Atpresent, the financial derivatives business has already become an indispensable core ofwhole financial market system.However, the financial derivatives alsp bring a series of crisis and risk shook theworld financial system at push the international financial market development. It is "ablade sword in financial ages" existing enormous risk. In 1995,Barings Bank, Britain'soldest merchant bank, caused bankruptcy because of illegally speculators leaded byGeorge Soros made use of the hedge fund, mainly consisted of the financial derivatives,attacked the financial market of Asia and resulted in Asian financial crisis damaged manynations' economy. On November 30, 2004, China Aviation Oil, which, the overseastate-owners enterprise, realized the assets appreciation to 800 times during only 7 years,applied for bankruptcy because of the speculative operation in futures market resulted inthe huge debt of US﹩550 million in a few months.The financial derivatives originally are to avoid the financial risk and push thedevelopment of the international financial market, but show the function to enlarge risk.What the financial drvivatives actually are and how risk is managed, that is exactlystudied in the paper.This paper consists of four chapters. Chapter Ⅰ is review on the financialderivatives. Chapter Ⅱ illustrates risk of the financial derivatives and problems inmanaging those risks. Chapter Ⅲ aims at establishing the theories of risk managementfor the financial derivatives. Chapter Ⅳ analysis the case of China Aviation Oilassociated with many means of risk management.