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But Prof Merton insists that derivatives have been grossly misunderstood: if things go wrong, it should not be blamed on these instruments per se, but on the way they are used. And he insists it is entirely possible – desirable, in fact – for institutions to use them for benign purposes that reduce exposure to risk. "Asking whether the world today wants to use derivatives or not is a bit of a meaningless question – it is like asking whether we want to use cars. They are an integral part of the financial system," he says.

"Derivatives are like anti-lock brake systems in a way – there is no question that they can make things safer, but only if people choose to use them that way. Often they don't – they might choose, for example, to drive faster in worse weather. Often we have chosen to use these tools not to decrease risks but to increase the benefits of taking the same risks."

Will business leaders succumb to these ideas? Marakon's strong franchise among blue-chip clients and IFL's Nobel-prize-winning name should help open doors. And Prof Merton, Mr Hancock and Mr Mendoza have already made a striking convert to their cause.

In the past year IFL has been designing a new pensions system for Philips, the electronics group. It uses derivatives to customise an individual's long-term investments – fine-tuning them to whatever level of pay-outs, contributions and risk profile he or she prefers.

The scheme, which is neither a standard defined contribution system nor a defined benefit plan, has been adopted by Philips' top 400 executives in Europe and will be rolled out across the European operations this year. However, Prof Merton hopes it can then spread to other companies. And behind the scenes he and his colleagues are now drawing up other schemes to help companies manage capital or fight off the private equity threat.

"[Applying finance science to companies] is a fascinating intellectual challenge," enthuses Prof Merton. "But it is obviously also a commercial opportunity."

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