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While the world has witnessed the growing use of derivative instruments and rapid expansion of derivatives markets over the past two decades, the extensive use of derivatives in developed markets, particularly of mortgage-related derivative products has been blamed for the recent global financial crisis. The supervisory bodies across the world have increasingly paid attention to the establishment of an effective governance system including the issuing of financial reporting rules for companies to disclose their derivative activities. By far derivatives research has predominately been based on western developed economies; little has been known about reporting and disclosing of derivatives from developing economies. The motivation of this study is to fill the research gap with the primary aim to assessing the usefulness of derivative related disclosures in China - the largest developing economy in the world. The study is divided into two major stages. The first stage mainly intends to reveal the degree of derivative related disclosures provided by Chinese listed companies. Annual reports of 53 Chinese listed firms are considered as the sampling unit for observation and analysis. Using the content analysis approach this study compares the derivative related information disclosed in companies' annual reports with the developed disclosure index that is largely based upon IFRS and IAS provisions. The study has found: First, the level of the compliance with IFRS and IAS derivative regulations by Chinese quoted companies is generally low. Second, Chinese listed companies are likely to prefer the use of equity derivative products rather than other types of derivatives. Third, the corporate size seems not to significantly affect the amount of derivative related disclosures by Chinese quoted companies. Fourth, the amount of derivative disclosures about the significance of using derivatives for the company's financial position and performance is significantly greater than that of information in relation to potential risks arising from the use of derivative instruments. The second phase primarily intends to examine the usefulness of derivative disclosures perceived by equity market participants. The study conducted in-depth interviews with 21 institutional investors including 10 investment managers and 11 professional analysts. The key findings include: First, the disclosed information about the use of derivative instruments by quoted firms is perceived to be useful and helpful in facilitating investment decisions. Second, the information related to the use of derivatives is generally thought to play a minor role in facilitating investment decisions. Third, the current provisions of derivative related information by Chinese quoted entities are generally unsatisfied by most of institutional investors. Fourth, the current accounting and reporting policies imposed by regulators seem to be very difficult for Chinese investors to understand. The study, the first study of its kind, contributes to the understanding of the current status and usefulness of derivative related disclosures in China. It also provides the valuable insight to the development of derivative reporting standards by offering some policy implications particularly to developing economies.

Conventional financial theory has played an important – and yet largely unexamined – role in shaping how we regulate modern financial markets. This thesis explores the influence of conventional financial theory on the regulation of over-the-counter (OTC) derivatives markets in the U.S. and U.K. prior to the global financial crisis. More specifically, it explores how conventional financial theory failed to adequately account for both the complexity of OTC derivatives markets and the nature and pace of financial innovation and, ultimately, how these blind spots became reflected in a ‘non-interventionist’ approach toward their regulation now widely viewed as suboptimal. This thesis yields three important contributions to the scholarly and public policy debates surrounding the regulation of modern financial markets. First, it articulates a more robust theoretical framework for understanding complexity, financial innovation, and the relationship between these powerful market dynamics. This, in turn, facilitates an examination of the implications of complexity and financial innovation in terms of the ongoing debates respecting the optimal source, form and scope of financial regulation. It also facilitates an examination of both the shortcomings of the pre-crisis regulatory regimes governing OTC derivatives markets and, looking forward, the prospective strengths and weaknesses of embryonic post-crisis reforms. Finally, and more broadly, this thesis enhances our understanding of the relationship between the important insights of financial theory and how we conceptualize and pursue the objectives of financial regulation.

Whilst common intuition and the rapid growth of weather derivative practices effectively support the notion that equity returns are sensitive to weather randomness, empirical support is fragile. This thesis is the first study that investigates weather exposure and weather risk-return trade-off consistent with the arbitrage pricing theory (APT). It explores weather risk and its premium in the U.S. market during January 1980 to December 2009, based on three of the most weather-influenced industries. The research starts with the construction of ten seasonally-adjusted weather measures as the proxies of unexpected temperature, gauged in Fahrenheit degree and percentage terms. The weather exposures of individual firms are estimated based on each of the ten measures and the market return. Although average weather exposure coefficients are small, the number of firms with significant estimates is more than attributable to chance and results are more profound in utilities. The weather coefficients are mainly stable over the sample period, indicating that the introduction of weather derivatives does not significantly impact a firm’s weather exposure. Further investigation into summer and winter time reveals that most of the significant weather betas are found in winter. However, only a minority of firms have statistically different weather betas between the two seasons. Results are robust with respect to the ten measures. The finding that unpredictable weather broadly affects groups of stocks has a direct implication in asset prices, as weather risk may be one of the priced factors. In this study, the weather risk premium is estimated using the standard two-pass Fama and MacBeth (1973) methodology, enhanced with Shanken’s adjustments for the errors in variables problem. The tests are based on firm-level and portfolio-level regressions, assessed by different model specifications and repeated for the ten weather measures. In the unconditional setting, there is little support that the market price of weather risk is not zero. Although the estimates are insignificant, the magnitudes of weather premiums are relatively high compared with those of other macroeconomic factors in previous literature. Most of the estimated weather pricings are negative; thus, stocks exposed to weather should be hedged against an unanticipated increase in temperature. The main pricing results are robust to alternative sample sets, portfolio formations, base assets and weather measures. Nonetheless, the significance of weather premium is slightly affected by model specifications. In few cases, the pricings of weather risk are significant when the positive values of weather betas are used in cross-sectional regressions.

The deregulation of regional electricity markets has led to more competitive prices but also higher uncertainty in the future electricity price development. Most markets exhibit high volatilities and occasional distinctive price spikes, which results in demand for derivative products which protect the holder against high prices. A good understanding of the stochastic price dynamics is required for the purposes of risk management and pricing derivatives. In this thesis we examine a simple spot price model which is the exponential of the sum of an Ornstein-Uhlenbeck and an independent pure jump process. We derive the moment generating function as well as various approximations to the probability density function of the logarithm of this spot price process at maturity T. With some restrictions on the set of possible martingale measures we show that the risk neutral dynamics remains within the class of considered models and hence we are able to calibrate the model to the observed forward curve and present semi-analytic formulas for premia of path-independent options as well as approximations to call and put options on forward contracts with and without a delivery period. In order to price path-dependent options with multiple exercise rights like swing contracts a grid method is utilised which in turn uses approximations to the conditional density of the spot process. Further contributions of this thesis include a short discussion of interpolation methods to generate a continuous forward curve based on the forward contracts with delivery periods observed in the market, and an investigation into optimal martingale measures in incomplete markets. In particular we present known results of q-optimal martingale measures in the setting of a stochastic volatility model and give a first indication of how to determine the q-optimal measure for q=0 in an exponential Ornstein-Uhlenbeck model consistent with a given forward curve.