The stock market crash of October 1987 has, in part, been blamed on portfolio insurance strategies that used futures markets. Large losses associated with the use of derivatives by firms such as Procter & Gamble ($137 million), Metallgesellschaft ($1 billion), and Barings PLC ($1.3 billion), and by Orange County, California ($1.7 billion) have led to fear among some market participants that derivatives trading is a very risky activity that could lead to a wide-spread disruption of the financial system.

This article appeared in the January/February 1997 edition of Business Review.

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