Evaluation of the Financial Derivative Risk from the Probability of Default Angle

The over development and excessive use of financial derivatives is one of the most important reasons in the evolvement of this American financial crisis. The theory on the formation and accumulation of financial risks and their transformation into the financial crisis shows that the development and use of large number of derivatives increase the global liquidity rapidly, and lead to the excess of global liquidity. And while the sectional and visible risk was transferred and avoided, the total risks were accumulated speedily in geometric progression, and ultimately triggered American mortgage crisis. The result of our empirical analysis confirmed the above theoretical argument.