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Keywords:Derivative securities 

Working Paper
Options, sunspots, and the creation of uncertainty

We present a model in which the addition of an option market leads to sunspot equilibria in an economy which has no sunspot equilibrium before the market is introduced. This phenomenon occurs because the payoff of an option contract is contingent upon market prices, and while prices are taken as exogenous by individuals within the economy they are endogenous to the economy as a whole. Our results provide robust counterexamples to the two most prevalent views of options markets in finance. Following Ross [1976], it is often assumed that the addition of option contracts to an incomplete markets ...
International Finance Discussion Papers , Paper 510

Working Paper
Corporate hedging in the insurance industry: the use of financial derivatives by U.S. insurers

In this paper we investigate the extent to which insurance companies utilize financial derivatives contracts in the management of risks. The data set we employ allows us to observe the universe of individual insurer transactions for a class of contracts, namely, those normally through of as off-balance-sheet (OBS). We provide information on the number of insurers using various types of derivatives contracts and the volume of transactions in terms of notional amounts and the number of counterparties. Life insurers are most active in interest rate and foreign exchange derivatives, while ...
FRB Atlanta Working Paper , Paper 96-19

Journal Article
Statement to Congress, July 12, 2000 (H.R. 4541, the Commodity Futures Modernization Act of 2000)

Federal Reserve Bulletin , Issue Sep , Pages 644-645

Journal Article
The economic benefits and risks of derivative securities

Certain events have raised concern about the risks associated with derivatives trading--witness Orange County, California or Procter & Gamble, both of which lost large sums of money using derivatives. However, the popular discussion often loses track of the benefits derivatives hold for firms, investors, and the economy as a whole. Have derivatives received a bum rap? Keith Sill admits that derivatives have risks, especially to the uninitiated, but they also have a great deal of value for the economy as well
Business Review , Issue Jan , Pages 15-26

Journal Article
The role of currency derivatives in internationally diversified portfolios

Diversification is widely practiced by investors seeking to reduce risk. In recent years investors have been turning to foreign markets to obtain even greater scope for diversification than domestic markets offer. With the internationalization of security portfolios, however, also comes an additional risk-foreign exchange risk. ; The use of currency derivatives in internationally diversified portfolios can help mitigate foreign exchange risk. This article investigates the impact of currency hedging on these portfolios, in particular index portfolios of stocks and bonds from markets in seven ...
Economic Review , Volume 82 , Issue Q 3 , Pages 34-59

Speech
Remarks at Panel Discussion on OTC Derivatives Reform and broader financial reforms agenda

Remarks at the 2013 OTC Derivatives Conference, Paris, France.
Speech , Paper 113

Journal Article
Correlation products and risk management issues

Unlike standard derivatives instruments, correlation products contain nonseparable risk, meaning that the price sensitivity of one risk factor is a function of the level of another risk factor. This article outlines the pricing and hedging of one type of correlation product, the differential swap, to show how nonseparable risk may escape traditional methods of assessing the risk of institutions' portfolios. The article considers the implications of correlation products for supervisory and institutional practices and concludes with a brief discussion of some ways nonseparable risk may be ...
Economic Policy Review , Volume 1 , Issue Oct , Pages 7-20

Newsletter
Clearing and settlement of exchange traded derivatives

Derivatives are a class of financial instruments that derive their value from some underlying commodity, security, index, or other asset. Futures and options are common forms of derivatives. This article explains how clearing and settlement systems for exchange traded derivatives work.
Chicago Fed Letter , Issue Oct

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