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background: Metallgecellschaft Refining and Marketing Company (MGRM) that lost $1.3 billion on energy derivatives from 1991 to 1993. They took a long position in forward
background: Metallgecellschaft Refining and Marketing Company (MGRM) that lost $1.3 billion on energy derivatives from 1991 to 1993.
They took a long position in forward contracts, sell gas and oil commodities at a fixed price to their customers then hedged this exposure (price risk) by using stack and roll strategy, taking a short position in gas and oil futures and swaps contracts for short terms.
sketch a graph on how the hedging/ speculation was conducted with labels (an example is provided underneath)
Payoff Long Calls Combination Price Short Forwards Payoff Long Calls Combination Price Short Forwards
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