Abstract
Financial derivatives are products whose price is linked with that of an underlying asset. The relationship between these two prices has been studied in depth, and the following conclusions have been reached: (1) the volatility of underlying asset’s price decreases after the introduction of derivatives, (2) the price discovery effect improves, (3) the liquidity of the underlying asset’s market increases, (4) the bid-ask spread decreases together, and (5) the noise component of prices decreases. Those results are microeconomic and are not coherent with a macroeconomic analysis of derivatives. Derivatives tend to change the effectiveness of monetary policy actions by modifying the instruments that can be used. Derivatives have a monetary nature that has not been yet recognized by central banks and international organizations such as the International Monetary Fund and the Bank for International Settlements. This monetary nature can be evident by testing the relationship between derivatives and the interest rate. The consciousness of the monetary nature of derivatives would impose the quantification of transactions at least by the institutions that hold them, such as banks and other financial operators, and consequently by national authorities.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
Reference
Angeloni, I. and M. Massa (1994) “Mercati Derivati e Politica Monetaria.” Comunicazione presentata alla XXXV riunione annuale della Società italiana degli Economists. Milano: Università Bocconi.
Antoniou, A., P. Holmes, and R. Priestley (1998) “The Effects of Stock Index Futures Trading on Stock Index Volatility: An Analysis of the Asymmetric Response of Volatility to News.” Journal of Futures Markets 18 (2): 151–156.
Banca d’Italia (1995a) “I Prodotti Derivati: Profili di Pubblico Interesse.” Centro Studi Finanziari, 3° ciclo di Lezioni “Emilio Moar,” Università Cattolica del Sacro Cuore, Milan.
Banca d’Italia (1995b) “Lo sviluppo dei prodotti derivati nella realtà italiana. Aspetti di mercato, prudenziali e gestionali.” Tematiche Istituzionali. Rome: Banca d’Italia.
Banca d’Italia (1995c) “Vigilanza Prudenziale sull’attività Delle Banche in Strumenti Derivati.” Banca d’Italia Bollettino economico 24: 13–23.
Bank of England (1993) “Derivatives: Where Next for Supervisors?” Quarterly Bulletin (London) 33:535–538.
Basle Committee on Banking Supervision (1995) “Treatment of Potential Exposure for Off-BalanceSheet Items.” Basle.
Bhanot, Karan (1998) “Stochastic Volatility Functions Implicit in Eurodollar Futures Options.” Journal of Futures Markets 18 (6): 605–627.
BIS (1994a) Compendium of annexes to the report on “Macroeconomic and Monetary Policy Issues Raised by the Growth of Derivatives Markets.” Basle.
BIS (1994b) “Macroeconomic and Monetary Policy Issues Raised by the Growth of Derivatives Markets.” Basle.
BIS (1996a) “Central Bank Survey of Foreign Exchange and Derivatives Market Activity.” Basle. BIS (1996b) “Rischio di Regolamento nelle Operazioni in Cambi.” Basle.
BIS (1999) “Central Bank Survey of Foreign Exchange and Derivatives Market Activity.” Basle, May. Calise, G. and G. Paladino (1999) “Driving Forces in the Location of Financial Centres.” IMI Working Paper, San Paolo.
Carlson, J.B., J.M. McIntire, and J.B. Thomsom (1995) “Federal Funds Futures as an Indicator of Future Monetary Policy: A Primer.” Federal Reserve Bank of Cleveland Review 20–30.
Chan, K., Y.P. Chung, and H. Johnson (1995) “The Intraday Behaviour of Bid-Ask Spreads for NYSE Stock and CBOE Options.” Journal of Financial and Quantitative Analysis 30(3) (September):329346.
Conrad, J. (1999) “The Price Effect of Option Introduction.” Journal of Finance 44(2) (June):487–498.
Craig, A., A. Dravid, and M. Richardson (1995) “Markets Efficiency Around the Clock: Some Supporting Evidence Using Foreign-based Derivatives.” Journal of Financial Economics 39: 161–180.
Damodaran, A. and J. Lim (1991) “The Effects of Option Listing on the Underlying Stock’s Return Processes.” Journal of Banking and Finance 15: 647–664.
Deutsche Bundesbank (1994) “The Monetary Policy Implications of the Increasing Use of Derivatives Financial Instruments.” Monthly Report (Frankfurt) (November).
Edwards, F.R. (1995) “Off-Exchange Derivatives Markets and Financial Fragility.” Journal of Financial Services Research 9: 259–290.
Fazio, A. (1968) Base Monetaria, Credito E Depositi Bancari. Quaderno di ricerca Ente per gli Studi monetari, bancari e finanziari Luigi Einaudi 2.
Fratianni, M., A. Hauskrecht, and A. Maccario (1998), “Dominant Currencies and the Future of the Euro.” Open Economies Review 9 (Supplement): 467–492.
Fratianni, M. and R Savona (1972) “The International Monetary Base and the Eurodollar Market: A Reply to the Comments of Heller and Drexler.” Kredit und Kapital, No. 1, Berlin.
Friedman, M. and A. Jacobson Schwartz (1963) A Monetary History of the United States 1867–1960. Princeton: Princeton University Press.
Fung, H.G. and W. Leung (1993) “The Pricing Relationship of Eurodollar Futures and Eurodollar Deposit Rates.” Journal of Futures Markets 13 (2): 115–126.
Garber, R (1996) “Managing Risk to Financial Markets from Volatile Capital Flows: The Role of Prudential Regulation.” International Journal of Finance and Economics 1: 183–195.
Garber, R (1998) Derivatives in International Capital Flow. NBER Working Paper 6623.
Garber, R and M.G. Spencer (1994) “Foreign Exchange Hedging with Synthetic Options and the
Interest Rate Defense of a Fixed Exchange Rate Regime.“ Working Paper 151, IMF Research Department, Washington, DC.
Gerlach, S. and F. Smets (1995) “The Monetary Transmission Mechanism: Evidence from the G-7 Countries.” Working Paper 26, BIS, Basle.
Glennon, D. and J. Lane (1996) “Financial Innovation, New Assets and the Behaviour of Money Demand.” Journal of Banking and Finance 20: 207–225.
Goodhart, C.A.E. (1995) “Financial Globalisation, Derivatives, Volatility and the Challenge for the Policies of Central Banks.” LSE Special Paper 74, London School of Economics, London.
Gorton, G. and R. Rosen (1995) “Banks and Derivatives.” Working Paper 12, Federal Reserve Bank of Philadelphia, Philadelphia.
Hentschel, L. and C.W. Smith Jr. (1997) “Derivatives Regulation: Implications for Central Banks.” Journal of Monetary Economics 40: 305–346.
Hooyman, C.J. (1993) “The Use of Foreign Exchange Swaps by Central Banks: A Survey.” Working Paper 64, IMF, Washington, DC.
Hull, J. (1994) Introduzione ai Mercata dei Futures e Delle Opzioni. Milan: II Sole 24 Ore Libri.
IASC (1998) “Financial Instruments: Recognition and Measurement.” Exposure Draft E62
London. IMF (1998a) “Hedge Funds and Financial Market Dynamics.” Occasional Paper 166, Washington, DC, May.
IMF (1998b) “International Capital Markets: Developments, Prospects and Key Policy Issues.” Washington, DC.
IMF (1999) “International Capital Markets.” Washington, DC.
IMF Committee on Balance of Payment Statistics (1998) “Financial Derivatives.” Washington, DC. Jegadeesh, N. and G.G. Pennacchi (1996) “The Behaviour of Interest Rate Implied by the Term
Structure of Eurodollar Futures.“ Federal Reserve Bank of Cleveland, Journal of Money, Credit and Banking 28(3).
Kenen, P.B. (1996) “Analysing and Managing Exchange-Rate Crises.” Open Economies Review 7: 469–492.
Keynes, J.M. (1930) A Treatise on Money (2 vols.).
Miller, M. (1991) Financial Innovation and Market Volatility. Chicago: Blackwell.
Murray, F. and R. Jagannathan (1998) “Why Do Stock Prices Drop by Less Than the Value of the Dividend? Evidence from a Country Without Taxes.” Journal of Financial Economics 47 (2): 161–188.
Rosengren, E.S. (1987) “Forecasting Changes in Inflation Using the Treasury Bill Futures Market.” Federal Reserve Bank of Boston New England Economic Review (March-April):41–48.
Rossetti, A. (1999) 1 Derivati Come Strumento di Intervento della Banca Centrale. Università degli Studi di Viterbo, Viterbo.
Savona, R. (1978) “II ruolo della moneta nella politiche di gestione della domanda globale: note alto studio dell’OCSE.” Giornale degli Economisti e Annali di Economia 11–12, Milano.
Savona, R and U. La Malfa (1969) “Some Notes on Expectations and the Demand for Bonds.” Metroeconomica 21(3):733–743, Bologna.
Savona R and A. Maccario (1998) “On the Relation Between Money and Derivatives and Its Application to the International Monetary Market.” Open Economies Review 9 (Supplement): 637–664.
Skinner, D.J. (1989) “Options Markets and Stock Return Volatility.” Journal of Financial Economics 23: 61–78.
Tavakoli, J.M. (1998) Financial Engineering: Credit Derivatives. New York: Wiley.
Tinsley, P.A. (1998) Short Rate Expectations, Terms Premiums and Central Bank Use of Derivatives to Reduce Policy Uncertainty. Washington, DC: Federal Reserve Board.
Tse, Y., T.H. Lee, and G.G. Booth (1996) “The International Transmission of Information in Eurodollar Futures Markets: A Continuously Trading Market Hypothesis.” Journal of International Money and Finance 15 (3): 447–465.
Von Hagen, J. and I. Fender (1998) “Central Bank Policy in a More Perfect Financial System.” Open Economies Review 9 (Supplement): 493–532.
Vrolijk, C. (1997) “Derivatives Effects on Monetary Policy Transmission.” Working Paper 121, International Monetary Fund, Washington, DC.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2000 Springer Science+Business Media New York
About this chapter
Cite this chapter
Savona, P., Maccario, A., Oldani, C. (2000). On Monetary Analysis of Derivatives. In: Savona, P. (eds) The New Architecture of the International Monetary System. Springer, Boston, MA. https://doi.org/10.1007/978-1-4757-6766-7_9
Download citation
DOI: https://doi.org/10.1007/978-1-4757-6766-7_9
Publisher Name: Springer, Boston, MA
Print ISBN: 978-1-4419-4984-4
Online ISBN: 978-1-4757-6766-7
eBook Packages: Springer Book Archive