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OverviewDiscussions of the role of derivatives and their risks, as well as discussions of financial risks in general, often fail to distinguish between risks that are taken consciously and ones that are not. To understand the breeding conditions for financial crises, the prime source of concern is not risk per se, but the unintended, or unanticipated accumulation of risks by individuals, institutions or governments including the concealing of risks from stakeholders and overseers of those entities. This report, the fourth in the ICMB/CEPR series of Geneva Reports on the World Economy, analyses specific situations in which significant unanticipated and unintended financial risks can accumulate. The focus is, in particular, on the implicit guarantees that governments extend to banks and other financial institutions, and which may result in the accumulation, often unrecognised from the viewpoint of the government, of unanticipated risks in the balance sheet of the public sector. Using the structural analogy between guarantees and options, the report shows that a government's exposure to risk arising from a guarantee is non-linear. For instance, in the case of a government which guarantees the liabilities of the banking system, the additional liability transferred onto the government's balance sheet by a 10% shock to the capital of firms is larger the lower that capital is to start with. Recognising this non-linearity in the transmission of risk exposures is essential to the reduction of the accumulation of unanticipated risks on the government's balance sheet. Analyses of recent international financial crises recognise that the implicit guarantees governments extend to banks and corporations create the potential to greatly weaken their balance sheets. The attention, however, has mostly focused on the reasons why such guarantees exist, rather than on measurement of the exposures they create. This report offers just such a framework for measuring the extent of a government's exposure to risk and how that exposure changes over time. The report also discusses ideas on how risk exposures can be controlled, hedged and transferred through the use of derivatives, swap contracts, and other contractual agreements. Full Product DetailsAuthor: Mario Draghi , Francesco Giavazzi , Robert C. MertonPublisher: Centre for Economic Policy Research Imprint: Centre for Economic Policy Research Edition: illustrated edition Volume: No. 4 Dimensions: Width: 17.10cm , Height: 0.60cm , Length: 24.80cm Weight: 0.200kg ISBN: 9781898128687ISBN 10: 1898128685 Pages: 140 Publication Date: 30 March 2004 Audience: College/higher education , Professional and scholarly , Undergraduate , Postgraduate, Research & Scholarly Format: Paperback Publisher's Status: Active Availability: Out of stock  The supplier is temporarily out of stock of this item. It will be ordered for you on backorder and shipped when it becomes available. Table of ContentsReviewsAuthor InformationMario Draghi is vice chairman and managing director of Goldman Sachs. Francesco Giavazzi is a professor of economics at Universita Bocconi, Milano, research associate of the National Bureau of Economic Research (NBER), and research fellow of the Centre for Economic Policy Research (CEPR). Robert C. Merton is University Professor Emeritus at Harvard Business School, where he was the George Fisher Baker Professor of Business Administration from 1988 to 1998 and the John and Natty McArthur University Professor from 1998 until his retirement in 2010. Tab Content 6Author Website:Countries AvailableAll regions |
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