A Global Derivatives Expert Shines the Light on Systematic Risk by David Galland
“A bank, especially an investment bank, is a fiendishly complicated institution. It is essentially a huge seething pot of current and future cash flows, the nature and risk of which change as the markets and the economy change.”
In order to better understand the tangled mass of derivatives overhanging the global banking system, we need to begin by defining some basic terms.
- Market value: The amount of money actually at risk. Let’s say you bought a call option contract on 100 ounces of gold. The actual price of that contract in the marketplace (about $7,000 today) is the market value of the contract. As you will soon learn, a...
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