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However, all are financial derivatives with underlying assets aimed at boosting market efficiency.

In principle, derivatives are as good as their underlying assets.

DuFour, who was here to sign a memorandum of understanding with the Thailand Futures Exchange (TFEX), said that simple packages of housing loans put on sale by banks would work fine.

But the problems arose because different kinds and qualities of loans were put together, resulting in complex high-risk, high-return packages, whose market eventually ran out of control.

Cross-holding of these assets among financial institutions and related parties concerned had also worsened the situation as the rate of defaults climbed, forcing institutions to mark their book value to market prices.

For example, when the price of a US$100-million (Bt3.2 billion) asset fell to $90 million, there was a $10-million loss when it was marked to the market.

Then, the market got more nervous as everyone wanted to get out and prices further dived to, say, $50 million, even though that asset could still be worth $100 million if it were not for the highly-negative psychological and other factors.

Later on, it worsened and no one wanted to buy such an asset, resulting in huge write-offs at some of the big investment banks, such as Merrill Lynch.

For options and futures, it seems the market is structured better and has comparatively less uncertainty whereas securitised mortgages, as in the US sub-prime crisis, were mostly traded on the over-the-counter market.

CBOE, set up in 1978, is the US's most active exchange for options, which are more complicated than futures.

With about 60 exchanges for options and futures around the world - seven of them in the US itself - the industry has been growing rapidly over the past few decades.

Last year, exchange trading of derivatives grew to 15.2 billion futures and options contracts from 11.9 billion contracts in the previous year, a rise of 28 per cent.

Equity index, individual equity or stock, and interest-rate contracts are among the most popular.

In principle, options provide investors the tool to manage risks and help reduce market volatility.

Given the wide range of options, the choice of strategies and possibilities available to investors is vast.

The US experience shows that retail investors with options are more likely to have an income higher than $100,000, with bigger holdings of liquid assets than non-options investors.

Secondly, options retail investors also conduct more stock trades in a given year than non-options investors, with figures showing 51 per cent of non-options investors make more than ten stock trades while 81 per cent of options investors make more than ten trades.

Investors in the latter category are also more likely to hold a wider range of investments in their portfolios - including over-the-counter stocks, exchange-traded funds, gold and futures contracts.

As for the three-year-old Thai market, TFEX, the development is still in its early stages, with the SET50 options and futures being the initial two products.

TFEX will introduce gold and individual stock futures later this year - in September and November, respectively - to provide a wider choice to investors.