Should There Be Derivatives?

A debate has ensued about the use of derivatives: should derivatives exist.

Derivatives are nothing new: the Greeks and Romans used futures and options in a limited sense and people actually use the derivative philosophy during every day life.

Here's an example of using a derivative example: say you want to hold a party outside at a park. But, you're afraid it's going to rain, so you deposit $10 to reserve a pavilion, just in case. That ten bucks is a hedge--or a derivative. Your willing to spend ten dollar so your day is not spoiled.

True, that derivative example is simplistic, but it gets to the heart of what a derivative is: an asset that manages risk. Sure, the derivative class has become more exotic and more complex over the years, but is that necessarily a bad thing? Technology has become more complex, too, but that doesn't mean we should throw out our computers because a few people have used them improperly or maliciously.

Eventually, the methods used to rationally manage risk and derivatives will catch up with the innovation.

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