The term ‘derivative’ is one of a number of finance terms which immediately conjures up a wide range of reactions from people. Some will quickly blame the proliferation of the instrument for many of the global economy's woes whilst others view it as an instrument which has helped in risk mitigation and economic development. Unpicking the prejudices and drilling down to the fundamental drivers and uses of derivatives is critical. Looking from all sides enables the reader to gain a clearer understanding away from the noise related to finance in the post global financial crisis world. The Economics of Derivatives takes great strides in achieving this, taking the reader through an accessible yet sufficiently detailed and technical assessment, so as to provide the reader with a much better understanding.

Some participants and observers of the financial markets have understandably focused on the role derivatives played, most recently in the global financial crisis. Indeed, it has been argued that derivatives were key contributors which enabled excessive risk taking which resulted in rogue traders such as Nick Leeson and Jerome Kerviel. Of course, with all of these things, the reality is much less straightforward and fraught with complexity.

What is agreed is that the use of derivatives and the impact of them on the global economy are of great importance. The impact on the developed economies has been well documented. What receives less coverage is the significant benefit that derivatives have had on the emerging economies. The ability to unpack the different components of risk have directly enabled countries to manage risk more effectively and allocate it in ways which have resulted in improved economic outcomes. This book examines in detail these critical aspects and grounds them well in economic theory. By examining the impact of the use of derivatives on the developed and the emerging markets, the book rightly shines a light on both the positive aspects as well as the challenges the derivatives markets and its participants face.