Regulating complex derivatives: Can the opaque be made transparent?

Dempster, Michael A. H.; Medova, Elena A.; Roberts, Julian
September 2011
Journal of Banking Regulation;Sep2011, Vol. 12 Issue 4, p308
Academic Journal
This article discusses the general legal principles governing the relationships between banks issuing over-the-counter structured derivatives to non-bank clients. After a discussion of the evident informational asymmetries between the counterparties to such deals, a representative sample is presented of recent deals failed from the clent's viewpoint, all the subject of current negotiation or ligitation with banks in Germany. Mathematical (mis)pricing and (asymmetric) counterparty risk asessments for these examples are summarised graphically before discussing the legal implications of their egregious features and their possible mitigation in future deals by appropriate regulation and interpretation in the world's courts.


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