Global Derivatives Debacles From Theory To Malpractice 1st Edition Laurent L Jacque - Solutions

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Compare the theory of Interest Rate Parity with “cost-of-carry” valuation formula.
Why should futures commodity markets expected to be in contango?
What was the nature of risk(s) faced by MGRM and had it planned to manage it?
What were the key assumptions necessary to ensure that the “stack-and-roll”hedging strategy devised by MGRM be successful?
Was MGRM speculating or hedging?
Why are deep-in-the-money currency options more expensive than out-of-themoney options?
How was Rusnak able to conceal the trail of cash-flow losses on his forward speculation?
Explain why entering pairs of put and call options at the same strike price for identical premia should have raised a red flag with the back office.
Explain how the international currency option put-call parity model can be used for arbitrage purposes.
Would Rusnak have been able to deceive Allfirst if he had speculated through exchange-traded currency futures and options instead of over-the-counter instruments?
Compare John Rusnak’s modus operandi with Nick Leeson (Barings).
What is the cost of financing when funds are raised by writing deep-in-the money options?
Why is arbitraging Nikkei 225 index futures between the OSE and the SIMEX unlikely to generate large profits?Were they any risks involved in these trades?
Explain the differences of speculating by buying vs. selling options on a stock index futures such as the Nikkei 225.
What is the difference between writing a straddle and a strangle? Are such trades speculative in natures and how do they compare to plain long or short positions on the Nikkei 225 index/
How was Leeson financing margins and margin calls on his futures’ trading?
Do you believe that Leeson acted alone?
What should have been the role of the Board of Directors in monitoring Barings’derivatives activities?
Why was Barings rescued in the 1890 crisis but not in 1995?
Compare a turbo-warrant with a plain option. Why would you expect the premium for a turbo-warrant to be lower than for a plain option?
What would be the impact of increased volatility of the DAX index on the value of call or put options on the index as compared to its impact on the corresponding turbo-warrant?
Where turbo-warrant get their name from?
Why was secrecy so important to the liquidation of SoGen’s speculative positions?
Should liquidation of outstanding speculative positions have been staggered over a period of weeks or even months rather than 72 hours?
Should universal banks which combine commercial banking with investment banking be allowed to engage in proprietary trading activities?
Identify the three most compelling explanations as to why Sogen failed to stop Kerviel’s fraudulent scheme.
Would you consider Procter & Gamble treasury operations best characterized as a cost or a profit center? If Procter & Gamble were to choose Profit Center as a model for its treasury what should its charter include to avoid the embarrassing and costly debacle that it experienced?
Why would a spread formula built around the differential in yields or prices of 5-and 30-year treasuries be far less risky than the actual mismatched formula used by Bankers Trust?
Should Judge Feiken have ruled in favor of Procter & Gamble on the issue of fiduciary responsibility?
How could Procter & Gamble hedge its exposure to the interest rate risk embedded in the leveraged swap. Would you expect the approximate cost of such a hedge to be equal to, more than or less than the 75 basis points that Bankers Trust was generously paying to Procter&Gamble? Howwould your answer
Do you agree with the characterization that OCIP was run as a hedge fund?
Why are repurchase agreement (repo) a very inexpensive form of short term financing?
Comment on the maturity structure of OCIP assets and liabilities.
Explain how leverage was enabling OCIP to deliver significantly higher returns than other municipal entities in California.
Should municipal entities such as OCIP be forbidden to use leverage.
Explain the differences between relative value, convergence and directional trades.
Referring to swap spread trades identify the nature of risk(s) taken on by LTCM.Explain why this trade accounted for such a large amount of losses incurred by LTCM in the summer of 1998.
Would you characterize LTCM volatility trades as convergence or directional trades?
Why was LTCM dubbed “the central bank of volatility”?
Why was LTCM progressively digressing from its convergence trades?
Are hedge funds a source of systemic risk? Should hedge funds be regulated like other financial institutions?
What are the lessons that regulators should have learnt from the LTCM debacle?
Should equal emphasis be placed on hedging oil price risk and exchange rate risk?On what criteria would you rely to decide which one to emphasize?
Show how Showa Shell could hedge its oil price exposure: 90-month oil forwards are at $21 and the annual cost of storing/insuring a barrel of oil is $0.45 and interest rate in the United States and Japan are, respectively 5% and 2% per annum?
Why were the two currency traders persisting in hedging their dollar exposures in spite of economic data pointing to an appreciating— not a depreciating— yen?
Knowing that the currency trader was on straight salary—that is he would not be paid any commissions nor bonus— what were his motivations to speculate?
Given that the pound sterling did not devalue until 1967 explain what would have been the end result of the Belgian trader’s speculative scheme if the bank had let it ride until maturity. Detail timing and amount of cash-flows.
Why are forward exchange rates not necessarily trading within the prescribed bands of fluctuation as established under Bretton Woods? Under what scenarios would forward rates remain within such bands?
Do you believe that trading rooms within large commercial banks should be forbidden to engage in directional trades?
Under what conditions would you allow trading rooms to engage in directional trades?
Compare the US gas and oil industry. Would you expect natural gas prices to be more volatile than oil prices?
How do you explain the seasonal pattern of natural gas prices?
What are the principal reasons which lead Amaranth LLC Advisors to its collapse?
As an investor in a natural gas hedge fund, which information would you monitor on a periodic basis?

Global Derivatives Debacles From Theory To Malpractice 1st Edition Laurent L Jacque - Solutions

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