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Feeding the volatility monster: Inside Wall St's US$8b time bomb

Financial players created US$8b of products tied to one index alone, while investors desperate for returns snapped them up as bankers collected fees

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"Everybody knew that this was a huge problem. Everybody knows that Inverse VIX is going to go to zero at some point, and all these inverse and leveraged products, not just in the VIX but elsewhere too, at the end of the day cost people a lot of money." - Devesh Shah, an inventor of the VIX

IT was the hot trade on Wall Street, a seemingly sure thing that lulled everyone from hedge fund managers to small-time investors.

Now newfangled investments linked to volatility in the stock market - until a few years ago, obscure niche products - have exploded in spectacular fashion.

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