Thursday, August 3, 2006

Derivatives shown to increase volatility

Well Fischer Black is right again. Or at least that is the conclusion of a new paper by Bhamra and Uppal. They model a market with and without "non redundant derivatives" and find that derivatives do lead to increased return volatility. A few look-ins at their largely theoretical paper:* "Our main result is to show that introducing a new derivative security that improves risksharing leads to an

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