Cookies?
Library Header Image
LSE Research Online LSE Library Services

Risk allocation: the double face of financial derivatives

Corsi, Fulvio and Hosni, Hykel and Marmi, Stefano (2013) Risk allocation: the double face of financial derivatives. The London School of Economics and Political Science. (Unpublished)

[img]
Preview
PDF - Other
Download (537kB) | Preview

Abstract

For the past two decades, derivatives provided the core financial innovation for risk-management and risk-sharing activities. However, in the aftermath of the 2007- 2008 crisis, derivatives have started to receive, partly for good reason, an increasingly bad press. The main purpose of this paper is to lay the foundations for a theoretical framework in which systemic risk is centrally involved in the assessment of derivative usage. We define an allocation to be efficient if it maximizes the Aggregate Sharpe ratio of the economy, i.e. if it allows to finance the maximum amount of productive investments while minimizing the overall systemic risk of the economy. We then say that a derivative is socially efficient if it leads to an allocation having higher Aggregate Sharpe ratio. We illustrate the applicability of our model by means of a qualitative analysis of three types of derivatives, namely Plain vanilla, Asset backed securities and Credit default-swaps.

Item Type: Monograph (Working Paper)
Official URL: http://www.lse.ac.uk/library/home.aspx
Additional Information: © 2013 The Authors
Subjects: H Social Sciences > H Social Sciences (General)
Sets: Research centres and groups > Centre for Philosophy of Natural and Social Science (CPNSS)
Date Deposited: 01 Jul 2013 11:35
Last Modified: 01 Jul 2013 11:47
URI: http://eprints.lse.ac.uk/id/eprint/50971

Actions (login required)

View Item View Item

Downloads

Downloads per month over past year

View more statistics