Global derivative debacles: from theory to malpractice

This book analyzes in depth all major derivatives debacles of the last half century including the multi-billion losses and/or bankruptcy of Metallgesellschaft (1994), Barings Bank (1995), Long Term Capital Management (1998), Amaranth (2006), Société Générale (2008) and AIG (2008). It unlocks the secrets of derivatives by telling the stories of institutions which played in the derivative market and lost big. For some of these unfortunate organizations it was daring but flawed financial engineering which brought them havoc. For others it was unbridled speculation perpetrated by rogue traders whose unchecked fraud brought their house down. Should derivatives be feared "as financial weapons of mass destruction" or hailed as financial innovations which through efficient risk transfer are truly adding to the Wealth of Nations? By presenting a factual analysis of how the malpractice of derivatives played havoc with derivative end-user and dealer institutions, a case is made for vigilance not only to market and counter-party risk but also operational risk in their use for risk management and proprietary trading. Clear and recurring lessons across the different stories call not only for tighter but also "smarter" control system of derivatives trading and should be of immediate interest to financial managers, bankers, traders, auditors and regulators who are directly or indirectly exposed to financial derivatives. The book groups cases by derivative category, starting with the simplest and building up to the most complex - namely, Forwards, Futures, Options and Swaps in that order, with applications in commodities, foreign exchange, stock indices and interest rates. Each chapter deals with one derivative debacle, providing a rigorous and comprehensive but non-technical elucidation of what happened.

Titre de l'écran-titre (visionné le 8 août 2011).

TRAITEMENT SOMMAIRE.

Ch. 1. Derivatives and the wealth of nations. What are derivatives? A brief history of derivatives. Derivatives and the wealth of nations. Organization of the book. Bibliography -- ch. 2. Showa Shell Sekiyu K.K. Hedging currency risk at oil companies. The mechanics of hedging dollar exchange rate risk and oil price risk. Was Showa Shell hedging or speculating? Concealing currency losses. The story unfolds. Forecasting exchange rates : treacherous at best. The moral of the story -- ch. 3. Citibank's forex losses. Currency trading in the tranquil days of Bretton Woods. Gambling on currencies with forward contracts. How do banks keep a lid on their foreign exchange trading operations. Speculating from a commercial bank's trading desk : when Citibank is not quite a hedge fund?a la Georges Soros. Hasty and costly conclusion. The moral of the story -- ch. 4. Bank Negara Malaysia. What is central banking all about? Bank Negara as a macro-hedge fund. How did Bank Negara speculate? -- ch. 5. Amaranth Advisors LLC. The rise and fall of Amaranth Advisors LLC. Genesis of natural gas derivatives. A primer on speculating in natural gas derivatives. The Alchemy of speculation through natural gas…