Derivative Market and Financial Crisis

Abstract

The derivative market, one of the most controversial market known, is an unexplored land. Although there is a tremendous amount of instruments traded on this market, still people know very little about the characteristics and the very foundations of it. Often we are afraid from unknown, afraid from what is beyond our understanding but very curious and willing to explore. The last financial crisis of 2008 was considered the worst after the great depression. Derivative market berried most of the blame and critiques from all over the economist’s community. This paper will try to give a full understanding of derivative market, starting from their very beginning up to nowadays world. By doing so, it is intended to give the reader a tool of judging and interpreting the derivative market behavior. Bringing data from different sources there will be an analysis regarding option market and how the global economy was exposed to such a risk. Did the option market cause the financial crisis? Can it happen again and what can be done to prevent similar occurrences? We all need to learn from the past mistakes and make a brighter future.