The notional amount of derviatives in play is massive - totals are unknown because many are off-balance sheet - dollar value can be in the trillions.
Today, I hear on CNBC that an Asian official had underestimated the value of carry trades in their currency - to the tune of TEN TIMES more than he thought.
The point is that the massive amount of money in the derivatives/currency markets equals massive systemic risk - and no one has a good grasp on the total risk level or its implications.
You can run all of the models and valuations that you want - they don't factor in the dominoe effect that will happen when counter-parties reneg on their agreements - LTCM was ONE FIRM - and that sent a shockwave throughout the financial markets. If multiple firms go under with derivatives trades, then we'll REALLY see what the definition of volatility is :eek:
Today, I hear on CNBC that an Asian official had underestimated the value of carry trades in their currency - to the tune of TEN TIMES more than he thought.
The point is that the massive amount of money in the derivatives/currency markets equals massive systemic risk - and no one has a good grasp on the total risk level or its implications.
You can run all of the models and valuations that you want - they don't factor in the dominoe effect that will happen when counter-parties reneg on their agreements - LTCM was ONE FIRM - and that sent a shockwave throughout the financial markets. If multiple firms go under with derivatives trades, then we'll REALLY see what the definition of volatility is :eek:
