115 CFA
File: Derivatives - Reading 48 - 5. Purposes and Criticisms of Derivative Markets

5. Purposes and Criticisms of Derivative Markets

d. describe purposes of, and controversies related to, derivative markets;

What is a complete market?
A complete market is a market in which any and all identifiable payoffs can be obtained by trading the securities available in the market.

What role do derivatives play for Risk management?
Financial derivatives provide a powerful tool for limiting risks that individuals and firms face in the ordinary conduct of their business. For speculators, risks associated with financial derivatives are not necessarily evil because they provide very powerful instruments for knowledgeable traders to expose themselves to calculated and well-understood risks in pursuit of profit.

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