Sovereign risks, derivatives and financial regulation

Abstract

The financial crisis that originated in the subprime mortgage market in 2011 has spread trough out the sovereign bonds market; the propagation of risks (contagion effect) happened because of economic causes (i.e. excessive public expenditure and poor growth) and because of financial causes (i.e. modification of the risk and lack of proper revision of global financial regulation). A key role has been played by financial derivatives, especially those written on the credit risk. The plausible exit strategy seems to be restoring confidence in the financial market that is completely absent at the present.