Most concerns about derivatives derive from the fact that it sounds so delightfully sophisticated

In a derivative, there is a buyer and a seller, and so whatever happens someone wins and someone loses and in essence it’s a wash out… of course as long as all can live up to their commitments. 

But, in a real market loss, like that of a lower value of a stock, a lower value of a painting, or a lower value of a real estate, there is at that time only a loser… and no winner… that is unless you count he who way back have earlier sold the stock, the painting or the house. 

And in this respect the trading in derivatives will depress much less the market than a depression of the values of the underlying vanilla assets. 

The big fuss that is raised around the issue of trading of derivatives, again, besides the possibility of one side of the trade not living up to his commitments, has much more to do with the fact that “derivatives” sounds so delightfully sophisticated when you let it roll down your tongue. 

But topping that must be the introduction of “delta, vega and curvature risk” into the discussions. Just read the index of the Basel Committee’s “Minimum capital requirements for market risk” of January 2016. Mindboggling! Do those who are responsible for what is coming out of the Basel Committee truly understand the implications of that for the banking system? 

I am quite sure that John Kenneth Galbraith’s “If one is pretending to knowledge one does not have, one cannot ask for explanations to support possible objections”, applies to most bank regulators… perhaps to all. 

Otherwise how come the real failures of the risk weighted capital requirements for banks, are not yet even discussed?

PS. My 2019 letter to The Financial Stability Board

PS. 2024: Inviting comments the Basel Committee issued a document on Technical Amendments. On e.g., “SCO60.80: Curvature charge for Group 2a crypto-assets”, I challenge you to draft a comment that an economist like me could understand.

“delta, vega and curvature risk” Basel Committee’s member understand less and less what they are doing, by the minute

To read the Basel Committee’s “Minimum capital requirements for market risk” of January 2016 is truly mindboggling. Do yourself a favor and just look at the index.

Do those really responsible for what is coming out of the Basel Committee truly understand what is said there?

I'm sure that John Kenneth Galbraith’s “If one is pretending to knowledge, one does not have, one cannot ask for explanations to support possible objections”, applies to most [perhaps all] of them.

And it is not like the Basel Committee has shown itself to be a good regulatory body. It has actually been one of the most failed ones… so failed that they should have been prohibited from having anything to do with bank regulations… forever.

Do you really think its current Chair, Stefan Ingves, could provide you with a lucid explanation of it?

I know enough about finance to know when our banks are being dug even deeper in the hole in which they should not be.

The regulators wrote that the bank capital requirements are portfolio invariant because … otherwise it “would have been a too complex task for most banks and supervisors alike”... and now they come with "delta, vega and curvature risk"?

PS. 2024: Inviting comments the Basel Committee issued a document on Technical Amendments. On e.g., “SCO60.80: Curvature charge for Group 2a crypto-assets”, I challenge you to draft a comment that an economist like me could understand.