Insurance Law Commons^™

Derivatives: A Twenty-First Century Understanding, Timothy E. Lynch

Faculty Works

Derivatives are commonly defined as some variation of the following: a financial instrument whose value is derived from the performance of a secondary source such as an underlying bond, commodity or index. But this definition is both over-inclusive and under-inclusive. Thus, not surprisingly, derivatives are largely misunderstood, including by many policy makers, regulators and legal analysts. It is important for interested parties such as policy makers to understand derivatives, because the types and uses of derivatives have exploded in the last few decades, and because these financial instruments can provide both social benefits and cause social harms. This Article presents …

Gambling By Another Name; The Challenge Of Purely Speculative Derivatives, Timothy E. Lynch

Faculty Works

Derivatives contracts can be used to hedge pre-existing risks, but they can also be used to speculate. This Article focuses on derivatives contracts in which both counterparties are speculators. These “purely speculative derivatives (PSD) contracts” have become increasingly common over the last several years and have notably resulted in the transfer of many tens of billions of dollars from institutions that had invested in the US subprime housing market to a handful of speculators who foresaw the market’s collapse, as well as many billions of dollars in fees to PSD brokers.

PSD contracts are problematic. PSD contracts are less-than-zero-sum transactions …

Credit Arrangements, Angelo Giampietro Avv.

Angelo Giampietro Avv.

International trade transactions can be regulated for their payment in various ways: by means of letters of credit or by cash and kind. Therefore, credit arrangements are a common and protection against risk solution. One of the most important challenges for traders involved in a transaction is to secure financing so that the transaction may actually take place. The faster and easier is the process of financing an international transaction, the more trade will be facilitated. The method of payment is crucial for the decision about the opportunity of the trading. Therefore, the arrangements for credit in international trade, play …