THE INFLUENCE OF FINANCIAL DERIVATIVES IN EMERGING CAPITAL MARKETS

Felicia Ramona Birău
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Felicia Ramona Birău: University of Craiova

Theoretical and Applied Economics, 2013, vol. XX, issue Special I, 299-305

Abstract: This paper aims to investigate the econometric nuances of financial engineering innovations in emerging capital markets. Financial globalisation and integration of financial markets, along with a series of intrinsic factors such as more specialized risk management strategies, pronounced volatility of financial asset prices, lack of regulation or massive leveraged speculations have contributed to the astonishing growth of financial derivatives. Financial derivatives trading has a significant influence in terms of speculation and this issue leads to increased emerging capital markets volatility. Nevertheless, derivatives have a substantial contribution in hedging against the risks of capital market dynamics and they constitute an indispensable financial instrument for portfolio diversification. Moreover, the behavior of financial derivatives is affected by the inefficiency of emerging capital markets which are highly volatile and fastidious to forecast. In order to capture the relevance of the analyzed issues, the paper highlights the case of Romanian Capital Market based on Black- Scholes model.

Keywords: volatility modeling; leverage effect; underlying asset; Black-Scholes model; option contracts. (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:agr:journl:v:xx:y:2013:i:special-i:p:299-305

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