THEORETICAL ANALYSIS OF FINANCIAL RISK AND TOOLS FOR ITS MANAGEMENT
Keywords:
risk, financial engineering, financial derivatives, credit default swapsAbstract
The study examines the theoretical formulations for the concept of „risk“. An effective mechanism for managing financial risk through financial derivatives, in particular debt default swaps, has been disclosed. The use of CDS as a basic tool for financial engineering has been proven, taking into account the possibility of this type of financial derivatives to increase the „fragility“ of the financial system and to help accumulate uncertainty. The latter thesis postulates the existence of a „paradox“ in financial engineering through credit default swaps because by helping to transfer risk, they concentrate the overall risk through increased collaborations in the financial system.References
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