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Split Derivatives: Inside The World's Most Misunderstood Contract, Dan Awrey

Cornell Law Faculty Publications

Derivatives are the "bad boys" of modern finance: exciting, dangerous, and fundamentally misunderstood. These misunderstandings stem from the failure of scholars and policymakers to fully appreciate the unique legal and economic structure of derivative contracts, along with the important differences between these contracts and conventional equity and debt securities. This Article seeks to correct these misunderstandings by splitting derivative contracts open, identifying their constituent elements, and observing how these elements interact with one another. These elements include some of the world's most sophisticated state-contingent contracting, the allocation of property and decision-making rights, and relational mechanisms such as reputation and the …