How to Avoid Another Derivative Crisis: Risk Management for Emerging Markets

Abstract

The losses reported by companies and financial institutions caused enormous alarm and concern in society, as well as debate and confusion on the appropriate use of derivatives instruments. Were derivatives responsible for these losses or was it simply their poor management? The fact is that while derivatives securities can effectively control and hedge financial risks, their uncontrolled use can be very dangerous. The chapter “Derivative Products in Emerging Markets and Prudential Regulations”, included in the monography Emerging Markets: Recent Developments, Challenges and Future Prospects (Nova Science Publishers, Inc., New York, 2018), examined the recent changes observed in derivatives trading in emerging markets, such as Mexico. In my experience as a practitioner and researcher of risk management and derivative products, I analyze the main obstacles to the adequate use of these instruments and offer practical recommendations for the use of efficient operational platforms, rigorous regulations and effective surveillance to discourage delinquencies and rogue trading within the financial service industry.

Keywords: Emerging Markets, Derivative Products, Risk Management

JEL Classification: C10, C13, G20, and G28