Financial risk management
Economic capital
Market risk
Credit risk
Liquidity risk
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The main challenges facing the derivatives market include limited use of derivatives due to managerial skepticism, limited derivative market microstructure, and lack of knowledge on derivative use and accounting . Another challenge is the need for revamping the market for credit derivatives to strengthen the financial infrastructure and mitigate moral hazard and the problem of 'too big to fail' . Democracy and the evolution towards a fiat currency have increased market volatility, leading to the growth of derivative markets . Flaws in derivative contracts and the complicated process of modeling-based derivative valuation contribute to the muddled nature of derivatives as a financial instrument . Additionally, derivatives have been associated with disruptions in the real economy, inflation, speculation, volatility in interest and currency rates, and financial market instability . Market risk, liquidity risk, credit and counterparty risk, legal risk, and transaction risk are the main risks faced by derivative securities .
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