Practical analysis for investment professionals
28 May 2013

The Use, Misuse, and Abuse of Derivatives

The dark side of derivatives is well known: Speculation and excessive risk can yield staggering losses. But not so well understood are the proper ways to use derivatives. Sell-side firms, such as financial institutions that sell derivatives to buy-side clients, identify a need and tailor a solution that is aligned with a client’s interest. That is the proper way to create a derivatives hedge, Bruno Dupire, Bloomberg’s Head of Quantitative Research, told delegates at 66th CFA Institute Annual Conference in Singapore. In his talk, Dupire provided much-needed guidance on how to extract value and avoid pain from the intricacies of the derivatives market.

“Good derivatives products represent an economic exchange that should benefit both parties and address economic exposures while optimally redistributing the risk between buyer and seller,” he said. That ideal, of course, was something that was all too infrequent during much of the pre-crisis derivatives trading.

Read more on the 66th CFA Institute Annual Conference blog

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About the Author(s)
Bud Haslett, CFA

Bud Haslett, CFA, is executive director of the Research Foundation of CFA Institute and head of risk management and derivatives. Previously, he served as director of option analytics at Miller Tabak + Co., LLC, and as CEO of Miller Tabak Capital Management. Haslett also spent two decades on the options trading floor, where he managed portfolios of stocks and options. He also served as a board member of CFA Society New York, chair of the board of regents for the Financial Analysts Seminar, and president of the CFA Society Philadelphia. Haslett was an active volunteer for CFA Institute, having served in a variety of capacities, including as a CFA exam grader and member of the Council of Examiners. He has also taught coursework on options at New York University, Johns Hopkins University, and Rutgers. Haslett is the founding chairman of the derivatives committee for CFA Society New York and is a member of the Institutional Investor Advisory Committee for the Chicago Board Options Exchange. He has conducted option presentations and workshops at more than 50 CFA Institute societies. Haslett holds master’s degrees from the University of Pennsylvania and Drexel University, and he has earned the Financial Risk Manager designation. Topical Expertise: Derivatives · Risk Management

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