Game theory for speculative derivatives: A possible stabilizing regulatory model

Francesco Musolino


The aim of this paper is to propose a methodology to stabilize the financial markets using Game Theory, specifically the Complete Study of a Differentiable Game. Initially, we intend to make a quick discussion of peculiarities and recent development of derivatives, and then we move on to the main topic of the paper: forwards and futures. We illustrate their pricing and the functioning of markets for this particular derivatives type. We also will examine the short or long hedging strategies, used by companies to try to cancel the risk associated with market variables. At this purpose, we present a game theory model. Specifically, we focus on two economic operators: a real economic subject and a financial institute (a bank, for example) with a big economic availability. For this purpose, we discuss about an interaction between the two above economic subjects: the Enterprise, our first player, and the Financial Institute, our second player. We propose a tax on financial transactions with speculative purposes in order to stabilize the financial market, protecting it from speculations. This tax hits only the speculative profits and we find a cooperative solution that allows, however, both players to obtain a gain.


Game Theory; Speculation; Financial Markets; Derivatives; Hedging Operations; Cooperative Solution

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