The collapse of Lehman Brothers, the near collapse of Bear Stearns and AIG, and the numerous defaults of major players in the freight derivatives markets unearthed the dangers posed by unmitigated risks and an opaque market structure in over-the-counter (OTC) derivatives trading.

Though OTC derivatives remain an essential tool in pricing and managing business risks, the financial crisis of the past two years has highlighted some major systemic issues.

Written by Luca Salerno and Gil Cohen, this article appeared in the March edition of Funds Europe.

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