Options are sometimes used as portfolio insurance / risk reduction (i.e., to reduce the standard...
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Finance
Options are sometimes used as portfolio insurance / risk reduction (i.e., to reduce the standard deviation of financial returns). However, since options themselves (calls or puts) are often extremely volatile it can be observed that the pervasive use of these and other financial derivatives has increased rather than decreased the volatility of financial market indices or the market as a whole. Please explain or clarify why this seemingly paradoxical situation exists.
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