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The Derivatives Markets in Latin America with an Emphasis on Chile

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  • Viviana Fernández

Abstract

Between the 1970's and the 1980's, the derivatives market flourished. Forwards, futures and options began to be regularly traded. According to information gathered by The Bank of International Settlements, at the end of April 2001 the value of over the counter(OTC) positions outstanding was over US$99 trillion, while the value of positions outstanding in organized exchanges was approximately US$20 trillion. In Latin America the largest derivatives exchanges are located in Argentina (MATBA, ROFEX), Brazil (BM&F, BOVESPA), and Mexico (MexDer). In addition, OTC markets exist in Chile and Peru. Excluding Peru, Chile's derivatives market is to date the least developed. Most domestic transactions are OTC, and consist of currency forwards (US dollar-Chilean peso). The use of other derivatives, such as options on stocks and futures on stock indices, has not gained ground. Economists claim that the blame should be put on regulatory constrains faced by institutional investors, and on market illiquidity. However, recent amendments to the Law of Capital Markets might boost the derivatives market by providing additional investment opportunities. Meanwhile, the market of currency forwards continues to be the most active. In particular, the elimination of the floating band of the US dollar against the Chilean peso in September 1999 increased currency risk, and made investors turned to shorter- maturity contracts.

Suggested Citation

  • Viviana Fernández, 2002. "The Derivatives Markets in Latin America with an Emphasis on Chile," Documentos de Trabajo 128, Centro de Economía Aplicada, Universidad de Chile.
    • Handle: RePEc:edj:ceauch:128
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    References listed on IDEAS

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    1. Hentschel, Ludger & Kothari, S. P., 2001. "Are Corporations Reducing or Taking Risks with Derivatives?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(1), pages 93-118, March.
    2. Neuberger, Anthony & Hodges, Stewart, 2002. "How Large are the Benefits from Using Options?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 37(2), pages 201-220, June.
    3. René M. Stulz, 1996. "Rethinking Risk Management," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(3), pages 8-25, September.
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    1. repec:idb:brikps:349 is not listed on IDEAS
    2. Esteban Jadresic & Jorge Selaive, 2005. "Is The FX Derivatives Market Effective and Efficient in Reducing Currency Risk?," Working Papers Central Bank of Chile 325, Central Bank of Chile.
    3. De la Torre, Augusto & Schmukler, Sergio, 2007. "Emerging Capital Markets and Globalization: The Latin American Experience," IDB Publications (Books), Inter-American Development Bank, number 349, November.
    4. Mr. Jorge A Chan-Lau, 2005. "Hedging Foreign Exchange Risk in Chile: Markets and Instruments," IMF Working Papers 2005/037, International Monetary Fund.
    5. Augusto de la Torre & Sergio L. Schmukler, 2007. "Emerging Capital Markets and Globalization : The Latin American Experience," World Bank Publications, The World Bank, number 7187, September.

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