Why derivatives need models: the political economy of derivative valuation models

Lindo, Duncan

doi:10.1093/cje/bex055

Cited by 8 publications

(5 citation statements)

References 35 publications

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“…Besides money markets, market-based finance is heavily reliant on derivatives, which are used to both finance positions and hedge the risks of market-based credit creation (Gabor, 2020). Derivatives are subject to constant price fluctuations, thus requiring trading strategies that employ complex mathematical modelling, and are increasingly backed by collateral through central counterparty clearing (CCP) systems (Lindo, 2018;Spears, 2019). It is the constellation of financial institutions outside traditional commercial banks involved in derivative trading, as well as repo markets and securitisation, which constitutes the modern 'shadow banking' system (Caverzasi et al, 2019;Braun and Gabor, 2020).…”

Section: Global Dollar Market-based Financementioning

confidence: 99%

Financialised capitalism and the subordination of emerging capitalist economies

Bonizzi

Kaltenbrunner

Powell

2022

Cambridge Journal of Economics

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The variegated experiences of financialisation in Emerging Capitalist Economies (ECEs) require a theory of global structural transformation in which these appearances can be located. Such a transformation can be found in the substantive advancement of the internationalisation of the circuits of capital, marking the passage into a new stage of financialised capitalism. In this new stage, finance has taken the concrete form of a US dollar market-based system, while production is carried out through global production networks. The confluence of these new realities has impacted both the size and the nature of the transfer of value from subordinate regions. An increasing share of this transferred value is captured by finance, both as reward for services rendered and as opportunities for expropriation have proliferated. In financialised capitalism, ECEs are cast in a subordinate position in relation to the extraction, realisation, and ‘storage’ of value, and the agency of their public and private agents is severely constrained.

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Section: Global Dollar Market-based Financementioning

confidence: 99%

Financialised capitalism and the subordination of emerging capitalist economies

Bonizzi

Kaltenbrunner

Powell

2022

Cambridge Journal of Economics

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“…Derivatives are subject to constant price fluctuations, thus requiring trading strategies that employ complex mathematical modelling, and are increasingly backed by collateral through central counterparty clearing systems (Lindo, 2018;Spears, 2019). It is the constellation of financial institutions outside traditional commercial banks involved in derivative trading, as well as repo markets and securitisation, which constitutes the modern 'shadow banking' system (Caverzasi et al, 2019;Braun and Gabor, 2020).…”

Section: Global Dollar Market-based Finance and Financial Subordinationmentioning

confidence: 99%

'Creating Change Where it Matters the Most': Artistic Directorship and Representation in the London Theatre

Derbyshire¹

2022

Comparative Drama

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“…This is the case in the banking business with the use of VaR (value at risk) as a risk management tool, used by virtually every important player in financial markets to calculate risks. A pricing model does not gain ground because it is a better predictor but mainly because market participants use it to price assets (Mackenzie and Millo 2003;Lindo 2017). In this sense, the BC entails the typical self-fulfilling mechanism of market standards.…”

Section: The Role Of Conventions On Financial Marketsmentioning

confidence: 99%

In the Long Run We Are All Herd: On the Nature and Outcomes of the Beauty Contest

Esposito

Mastromatteo

2020

SSRN Journal

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Since the 2008 crisis, the economics literature has shown a renewed interest in Keynes's "beauty contest" (BC) as a fundamental aspect of the functioning of financial markets. We argue that to understand the importance of the BC, psychological and informational factors are of small importance, and a dynamic-structural approach should be followed instead: the BC framework is paramount because it is rooted in the historical trajectory of capitalism and it is not simply a consequence of "irrational" (i.e., biased) agents. In this genuine form, the BC mechanism allows one to understand the main trends of a financialized world. Moreover, the conventional nature of financial markets provides a sound method for assessing different economic policies whose effectiveness depends on how much they can influence the convention itself. This alternative understanding of the BC can be used to start the needed rethinking of economics, urged by the crisis, that is for now reduced to studying the financial and psychological "imperfections" of the market.

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Why derivatives need models: the political economy of derivative valuation models

Cited by 8 publications

References 35 publications

Financialised capitalism and the subordination of emerging capitalist economies

Financialised capitalism and the subordination of emerging capitalist economies

'Creating Change Where it Matters the Most': Artistic Directorship and Representation in the London Theatre

In the Long Run We Are All Herd: On the Nature and Outcomes of the Beauty Contest

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