Hybrid securities and commodity swaps; tools to hedge risk in emerging stock markets: Theoretical approach

Abstract

This study presents hybrid securities and commodity swaps as a diversification channel in emerging stock markets, in particular, Gulf Cooperation Council (GCC). It is evident that derivative markets play a crucial part in the global financial system. The use of hybrid securities as a tool to hedge risk in emerging stock markets has, however, not been closely examined. Hybrid securities can play a vital role in the future of emerging stock markets. It may be considered a key capital management tool. The paper attempts to apply the appropriate mechanism of hybrid securities in emerging stock markets. Credit derivatives have many uses and provide flexibility to transfer and price credit risk more efficiently. The expected defaults in the GCC markets are expected to continue growing at a high rate. Credit derivatives are likely to be used more extensively in those situations where buying or selling in cash markets is cumbersome and less efficient.