Assoc. Prof. Carmen Costuleanu Ph. D Assoc. Prof. Roxana Angela Calistru Ph. D Additional contact information Assoc. Prof. Carmen Costuleanu Ph. D Assoc. Prof. Roxana Angela Calistru Ph. D: University “Petre Andrei” of Iaşi Faculty of Economics Iaşi, Romania
Derivatives were initially a response to the increased volatility of financial markets, but then the growth of financial derivatives has played a role in exacerbating shocks. Hence, implications of derivatives for the functioning of financial markets may differ between normal and crisis conditions. In normal market conditions, derivative markets perform a number of economic functions likely to help in discovery of future as well as current prices, to improve risk-sharing, to enhance the liquidity and efficiency in the market for the underlying asset etc. Given their leverage and low transactions costs, derivatives facilitate the taking of speculative positions and can assist uninformed investors in taking market positions, which could finally reinforce markets fall. In times of stress, they may increase the valuation uncertainties which inevitably arise in such periods.