The Derivatives Market: Efficiency and Speculation

Abstract

Derivatives, as it is well known, are used in hedging transactions, as well as in speculative ones. Some types of pricing are made for speculative or even criminal purposes: Russell Sage (1816-1906), US financier. A variety of measures such as the Jensen's Alpha, the Sharpe Index and the Value at Risk, commonly used in portfolio evaluation, are misleading in presence of derivatives. The hidden risk may suddenly have dramatic consequences (Barone Adesi, G. (2004)). From this perspective, this paper does not consider information asymmetry but aims at showing how, through derivatives and options in particular, it is possible to build strategies that are independent from the trend of underlying assets. This feature was at first proved in Barone, E.- Olivieri, G. (2009) and is investigated much more in details in this study.