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Derivatives, Commodities, and Social Costs: Exploring Correlation in Economic Uncertainty

Aleksandr Gevorkyan and Arkady Gevorkyan

A chapter in Derivative Securities Pricing and Modelling, 2012, pp 47-70 from Emerald Group Publishing Limited

Abstract: Derivatives market has been epitomized with gross evil in the wake of the global economic crisis that ensued in 2008. This study argues for more extensive understanding of the phenomena as dynamics previously viewed unrelated now exhibit correlation. As empirical reference, this research relies on recent trends in the commodity futures contracts with analytical relation to the currency exchange rate and by extension the financial and real sectors. With varying intensity often speculative sporadic trading in crude oil, coffee, wheat, rice, sugar, and gold benchmark futures may inflict detrimental effects on the global development efforts. The issue is most acute in the emerging markets facing inflation fears, speculative movements of foreign currency-denominated funds, and underlying domestic currency value. This dynamic reasserts the concept of fundamental uncertainty allowing us to connect the typical risk-return stand with a dialectical unity of the financial, real sector, and social costs. Ultimately, issues raised in this study relate to the problems of social stability and sustained economic development in the postcrisis environment given high frequency and volatility of capital flows. As such, this chapter contributes to the literature that bridges financial empirical analysis with modern socially responsible economic development.

Keywords: Commodity derivatives; fundamental uncertainty; emerging markets; exchange rate; international reserves; sovereign debt (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1108/S1569-3759(2012)0000094005

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