> However, I still don't see the necessity of these instruments. > For example, wouldn't it be more natural for a pension fund to just spread the risks by buyin

> However, I still don't see the necessity of these instruments. > For example, wouldn't it be more natural for a pension fund to just spread the risks by buying different stocks? That's like saying, "Wouldn't it be more natural for a homeowner to just spread the risk of fire by buying multiple houses?" Yes, in theory you could buy 2 houses and just move into the 2nd house if the first one burns down... but it's much more cost efficient to buy one house and get insurance on it. You'd have to buy 2 inferior houses instead of putting all of your money into 1 nicer house and paying a small amount for insurance. There are lots of theories and studies on the topic of stability, though it is very hard to draw firm conclusions as the economic and financial conditions at any given moment are unique, making repeatable experiments difficult or impossible. Another complicating factor is that you can make lots of money by discovering a way to make market systems more stable that nobody else knows about, so much of the research on the topic is secret.