China's Financial Derivatives Market Of Non-complete Problem,

In this paper, normative analysis is applied to study the China's financial derivatives incompleteness. The paper's conclusion is that it is possible for China's Pareto optimal market state of financial derivatives if we focus on the goal of market efficiency and create the desired system in spite of the incompleteness. The paper's logic is as follows: firstly, it researches the developing history of the global financial derivatives, and then theoretically demonstrates the existence of Pareto optimality of China's financial derivatives. Secondly, paper finds the incompleteness of China's financial derivatives market comparing with the Pareto optimal control market standards. Furthermore, it studies the underlying causes of the incompleteness of China's financial derivatives market from the neoinstitutional economics angle. In the final part, paper suggests that China's financial derivatives market should create desired system for Pareto improvement.The first chapter discusses the financial derivatives markets completeness literature summarizes, including derivatives market fairness and legitimacy and asset portfolio theory, pricing and trading strategies in the different period and different research focus by the formation of the theoretical results. The part also reviewed the innovation of financial derivatives markets completeness based on the market relationship, risk management and relevant regulation theory.The second chapter discusses the developing history of the global financial derivatives. The author redefine the concept of financial derivatives to be actually sale and purchase agreements on the basis of currency, foreign exchange, bonds, stocks, index and other financial assets and their price fluctuations., and then the financial derivatives are classified. Based on the above, the author study the situation and characteristics of contemporary global derivatives market from the angles of market place, underlying asset, product type, national and regional development.The third chapter demonstrates the existence of Pareto optimality in the financial derivatives market, as well as discussing the relevant three. First, the author answer that why Choose Pareto optimal standards to measure the completeness of financial derivatives, and the efficiency of the financial derivatives market and the real economy have homogeneity, and also have positive externalities on the real economy, and also change with the different stages of economic development. Second, the author demonstrate the equilibrium of Pareto optimal competitive and market completeness from two angles after interpreting of the Pareto optimal theoretical connotation: the market achieve the freedom of Walrasian equilibrium and Pareto optimal through freely price competition, and the capital market can reach Pareto optimal allocation of resources through free trade mechanism. Also, the author discusses the Pareto optimal production, exchange, production - in exchange for implementation of the theory and auction in this section. Third, the theory of Pareto efficiency is applied to the field of financial derivatives, and the financial derivatives market defined the concept of Pareto optimality in the first section, and review the standards determining the economic efficiency, social welfare function, Arrow Theorem. On the basis of this theory, the author pointed out that the financial derivatives market will form a social indifference curve, and thus Pareto optimal state of financial derivatives market will exist, or can infinitely approximate Pareto optimal state, as long as the creation of a consensual nature of the system efficiency standards in preference to avoid the opposite 3 and 7 and using exactly the same social status or personal preference most of the state's policy of consistent measures. And then, the author constructs a "cloverleaf" model to make Pareto optimality come true from three institutional arrangements: standard and open transparent and fair system, the safety risk control system, and the coordinated development of the system in accordance with the real economy.Chapter IV discusses the innovation, deepen and incompleteness characteristics of China's financial derivatives market. At first, the author discusses the four stages historical development of China's financial derivatives market after the boom, straighten out, standardize and rapid development. After concluding China's financial derivatives market interest rate, currency, equity, asset-backed class structure of the product mix for the improvement, the author created two important indicators--- rate of financial derivatives, and related rates of financial derivatives. In the meanwhile, the author use existing data to calculate the rate and related rate of 2008 China Financial Derivatives were 0.0797 and 0.3984 respectively. Second, compared to developed countries and regions, the authors pointed out four shortages of China's financial derivatives incompleteness: a conservative institution, a single product, innovation of financial derivatives market is not enough; risk awareness is not strong, the risk of rational enlightenment, the formation of mechanism, measurement models haven't through deep understanding; financial derivatives had not yet become the industry to avoid risks, the financial tool for price discovery; inadequate laws and regulations of China's financial derivatives market, and also the regulatory efficiency is not high.Chapter V analyzes the inefficiency of China's financial derivatives, and discusses the underlying reasons from the perspective of new institutional economics. After concluding the normal function of China's financial derivatives market, price discovery function of initial success, the investment effect initially appeared, the author pointed out three shortages of China's financial derivatives market. Then, the author demonstrates four aspects of incompleteness of China's financial derivatives market from the neoinstitutional economics angle, they are the evolution of China's derivatives market system not long; the existence of financial derivatives market principal - agent in the adverse selection and moral hazard; the high costs of endogenous derivatives market transaction costs and exogenous transaction; the concentrated social wealth in government hands hinder the development of China's financial derivatives market.Chapter VI discusses the path choice of the Pareto improvement of China's financial derivatives market. There are six aspects: First, building financial derivatives industry clusters to enhance economies of scale. Because the institutional investors are the core position in the value chain, commercial banks, securities and fund companies, insurance companies, non-financial enterprises and other institutional investors should play a more active and important role. In particular, we should foster China's domestic investment banks, hedge funds and CTA, and focus on the construction of financial professionals and other health factors, formulating a interactive pattern of upstream and downstream industry. Second, following the way of "structure from simple to complex, risk from high to low", China should adapt economic and financial reform to match financial derivatives market demands. Third, strengthening risk control and improving the introduction and appropriate use of sensitivity (the Greek values) measured the degree model and the value at risk (VaR) measurement model. Fourthly, enacting "derivatives Exchange Act" and strengthening regulatory efficiency. Fifth, We should open up further by integrating our "bringing in" and "going global" strategies for improving the internationalization of China's financial derivatives market.