The Future of Futures
Show Less

The Future of Futures

The Time of Money in Financing and Society

Elena Esposito

This book reconstructs the dynamics of economics, beginning explicitly with the role and the relevance of time: money uses the future in order to generate present wealth. Financial markets sell and buy risk, thereby binding the future. Elena Esposito explains that complex risk management techniques of structured finance produce new and uncontrolled risks because they use a simplified idea of the future, failing to account for how the future reacts to attempts at controlling it. During the recent financial crisis, the future had already been used (through securitizations, derivatives and other tools) to the extent that we had many futures, but no open future available.
Buy Book in Print
Show Summary Details
You do not have access to this content

Chapter 10: Trading Uncertainty

Elena Esposito


Like current financial markets in general, the market of derivatives produces the future and produces risk. Conversely, however, what actually happens is often different from what operators (and most theories) think will happen. Risk management is based on an assumption, one implicit in the techniques prevalent in the 1970s and involved in the generation of their calculations, that unpredictable risk behaves in a predictable way. Our inability to know the trends of the world generates risk. However, we can know the trends of risk. Even if our expectations are often wrong, we can at least expect to be able to obtain a certain kind of security from risk calculations (section 1). Markets are unpredictable because we cannot know if they will move upwards or downwards, if an asset will display good or bad behaviour. Volatility measures these changes and increases when turbulence (of the market or of an asset) rises. The financial techniques for risk management assume an ability to control this unpredictability. This assumption is made because, even though one cannot know in which direction the market will go, one expects to be able to know how volatility will move. In calculating implied volatility, one should be able to predict whether the movements will be broad or narrow, fast or slow (even without predicting if they will go up or down). Against these movements, one seeks protection through various strategies that compensate for them, allowing one to operate with risk without risk (section 2). This has seemed to work...

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information

or login to access all content.