| Since 1990s,there occurred a number of renowned loss-making cases in global financial derivative markets,e.g. the corruption of Baring Bank and the bankruptcy of the financial fund of the Orange County Government,California. But the size of global financial derivative markets continued to expand,with an increasing number of tradable products and more innovative designs. Financial derivative markets have currently made an important research subject in financial areas.This essay,with five sections,about 48,000 Chinese characters,tries to study the following issues:1. The fundamental connotation of financial derivatives and the necessity for the evolution and growth of financial derivative markets2. The functions of financial derivative markets and relevant issues3. The enlightenment of the growth of financial derivative markets-strengthening their risk control4. Policy-related suggestions on the development of financial derivative markets in China and issues related to offering stock-indixed futures in ChinaSection one,a general introduction of financial derivatives covers features,types of and major pricing theories related to these products. The author provides basic concepts of financial derivatives,e.g. financial futures,Mire options,and swap,and summarizes their features into leverageablility,financing,high risks and the virtual property. An important force driving the growth of financial derivatives,as well as an indicator,is the evolution of the pricing theory. The essay expounds on the pricing model for financial futures,the Black-Scholes model for future options pricing and swap pricing issues by a non-hedging method,enlisting some cases of conflicts and deviations between assumed conditions of financial derivative pricing theories and the reality.Section two,the evolution and growth of financial derivative market,first reviews the history of financial futures,future options and swap markets,and then concludes that financial derivatives market have made rapid advances with a growing trading volume and the progress in trading technology. The author probes both the internal and external causes for the growth,i.e. risk factor and technological advance factor:on the one hand,rising risks on global financial markets have created a huge demand for risk hedging;on the other,technological advances have largely reduced risk transactions and management costs,making possible financial derivative trading. Financial globalization has become an important drive for the growth of financial derivative markets,providing convenient financing and investment tools for international traders and investors,but also bringing forth massive global flowing capital and corresponding risks,and resulting in the growth of financial derivative markets with different risk types.Section three,the functions of financial derivatives and their negative impacts,presents thefunctions of financial derivative market in four points:(1) Risk transfer,which can be categorized into hedging for value preservation and procurement of a satisfactory risk position,based on its purposes. Derivative market has its unique role and significance in risk transfer. (2) Price discovery. The intrinsic links between derivatives and primary securities increase the effectiveness of derivative markets and market efficiency,thus capable of price discovery. (3) Increased market liquidity. Based on a profound study of the relationship between liquidity and trading costs/market depth,the author proves its function in enhancing market liquidity integrated with the trading features of derivatives. And (4) The negative impact of derivative markets. These primarily cover excess speculation and off-balance trading as a result of the leverage effect,and difficulties for financial regulators owing to the complexity and variation of financial'derivatives. These trigger further thinking on the growth of derivative markets.Section four,risk management of derivative markets. It first accounts a major issue in the global financial worl... |
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