TY  - JOUR
AU  - Stulz,Rene M.
TI  - Should We Fear Derivatives?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10574
PY  - 2004
Y2  - June 2004
UR  - http://www.nber.org/papers/w10574
L1  - http://www.nber.org/papers/w10574.pdf
N1  - Author contact info:
Rene M. Stulz
The Ohio State University
Fisher College of Business
806A Fisher Hall
Columbus, OH 43210-1144
Tel: 614/292-1970
Fax: 614/292-2359
E-Mail: stulz_1@cob.osu.edu
AB  - This paper discusses the extent to which derivatives pose threats to firms and to the economy. After reviewing the derivatives markets and putting in perspective the various measures of the size of these markets, the paper shows who uses derivatives and why. The difficulties firms face in valuing derivatives portfolios are evaluated. Although academics pay much attention to no-arbitrage pricing results, the paper points out that there can be considerable subjectivity in the pricing of derivatives that do not have highly liquid markets. It is shown that the known risks of derivatives portfolios can generally be measured and managed well at the firm level. However, derivatives can create systemic risks when a market participant becomes excessively large relative to particular derivatives markets. Overall, the benefits of derivatives outweigh the potential threats.
ER  -