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Systemic Risks in the Derivatives Market: Origins, Impacts, and Mitigation Strategies
- 1 College of Economic and Management, Beijing University of Technology, Beijing, 100020, China
* Author to whom correspondence should be addressed.
Abstract
Derivative markets play an indispensable role in the contemporary financial system. The global financial markets have been repeatedly riddled with turbulence instigated by derivative trading in recent years, underscoring the urgency and necessity for in-depth study in this field. The subject matter of this paper is to delve into systemic risk in the derivative markets, including its genesis, impact, and mitigation strategies. This paper aims to proffer valuable insights and recommendations to policymakers and financial practitioners through comprehensive analysis. To achieve this objective, this study utilizes research methodologies such as literature review, analysis of historical cases, and empirical analysis. The findings suggest that the systemic risk in the derivative markets primarily stems from high leverage operations, market information asymmetry, and complex financial product structures. These risks became particularly prominent during the financial crisis, leading to an upsurge in market volatility, liquidity crises, and a domino collapse of financial institutions. Based on these findings, the paper proposes a gamut of strategies to mitigate systemic risk, including enhancing market transparency, optimizing risk models, augmenting capital requirements, and fostering international regulatory cooperation. Additionally, technological innovations such as blockchain and big data analysis are considered to hold significant potential in enhancing market transparency and improving the accuracy of risk prediction.
Keywords
Systemic Risks, Derivatives, Impacts
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Cite this article
Gao,S. (2024). Systemic Risks in the Derivatives Market: Origins, Impacts, and Mitigation Strategies. Advances in Economics, Management and Political Sciences,114,92-100.
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Volume title: Proceedings of ICEMGD 2024 Workshop: Innovative Strategies in Microeconomic Business Management
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