Risk Takers : Uses and Abuses of Financial Derivatives, Fourth Edition.

Format:

Book

Author/Creator:

Marthinsen, John E.

Language:

English

Subjects (All):

Derivative securities.

Risk management.

Physical Description:

1 online resource (558 pages)

Edition:

4th ed.

Place of Publication:

Berlin/Boston : Walter de Gruyter GmbH, 2025.

Summary:

Risk Takers: Uses and Abuses of Financial Derivatives bridges the gap between theory and practice, making the often mysterious world of derivative finance both accessible and engaging.Through clear explanations and real-world stories, John Marthinsen reveals how derivatives can be wielded to create or destroy value.

Contents:

Intro

Acknowledgments for the Fourth Edition

Acknowledgments for the First to Third Editions

Contents

Preface

Purpose of the Book

Organization of the Book

Resource and Learning Material

Chapter 1 Primer on Derivatives

What Are Derivatives?

Who Buys and Sells Derivatives?

Where Are Derivative Contracts Bought and Sold?

Two Major Types of Derivatives

Forward Contracts

Futures Contracts

Swap Contracts

Option Contracts

Long Forward in Action

Short Forward in Action

Options

Call Options

Put Options

American versus European Options

Examples of Puts and Calls in Action

Using a Long Call

Using a Short Call

Using a Long Put

Using a Short Put

4,000 Years of Derivatives

Conclusions

Risk Notepad 1.1

OTC-traded versus Exchange-Traded Derivatives

Exchange-Traded Deals

Margin

Marking to Market

OTC-Traded Deals

Profit Risk versus Cash-Flow Risk

Review Questions

Bibliography

Chapter 2 Employee Stock Options: A User's Guide

ESOs: A Major Pillar of Executive Compensation

Why Do Companies Use ESOs?

Aligning Incentives

Hiring and Retention

Adjusting Compensation to Employee Risk Tolerance Levels

Employee Tax Optimization

Cash Flow Optimization

Cash Flow Effects at Issuance

Cash Flow Effects at Exercise or Expiration

Option Valuation Differences and Human Resource Management

Problems with ESOs

Employee Motivation

The Share Price of "Good Companies"

Motivating Undesired Behaviors

Improving Performance

Absolute Versus Relative Performance

Possible Solutions to Employee Stock Option Problems

Premium-Priced Stock Options

Index Options

Restricted Shares

Omnibus Plans

Bibliography.

Chapter 3 Roche Holding: The Company, Its Financial Strategy, and Bull Spread Warrants

Roche Holding AG: Transition from a Lender to a Borrower

Roche's 1991 Bull Spread Issue

Analysis of the Bull Spread's Return to Investors

Analyzing the Bull Spread Issue from Roche's Side

Roche's Bull Spread Issue: The Result

Chapter 4 The Three Amigos and Their Strategy

Developing and Implementing a Speculation Strategy: A Conversation

A Deeper Look at the Three Amigos' Strategy

Step by Step: The Three Amigos' Speculation Strategy

Put-Call Parity

Another Look at the Three Amigos' Speculative Strategy

Are Options Always Efficiently Priced?

What Happened to the Three Amigos' Trade?

Chapter 5 Metallgesellschaft AG

Metallgesellschaft: Evolution of the Company and Its Product Lines

Energy Derivatives at MGRM

MGRM'S Innovative Energy Derivative Products

MGRM's Embedded Options

Hedging MGRM's Forward Energy Exposures

Cash Flow Effects of a Stack-and-Roll Hedge

Stack-and-Roll Hedge Ratios

MG Calls It Quits

MGRM Butts Heads with NYMEX and the CFTC

MGRM'S Profitability: It's All in How You Account for It

MGRM'S Credit Rating

The Effects of an Itchy Trigger Finger

Was MGRM Hedging or Speculating?

Corporate Governance Issues

Chapter 6 Swaps that Shook an Industry

P&amp

G's Motivation for the Swaps

The U.S. Dollar-Denominated Swap

German Mark-Denominated Interest Rate Swap

The Suit against Banker's Trust

The P&amp

G-BT Settlement

How Did BT Fare after the Swaps?

G-BT from an Investor's Perspective

The Landmark P&amp

G-BT Court Opinion

Disclosure Reform after P&amp

G-BT.

Should Corporate Treasuries Be Profit Centers?

Appendix 6.1

Chapter 7 Orange County

Robert Citron and the Orange County Board of Supervisors

The Orange County Investment Pool

The Major Risks Facing Assets in the OCIP Portfolio

OCIP's Assets and Funding Sources

Leveraging the OCIP Portfolio

Monday-Morning Quarterbacking

Sentences, Blame, and Reform

Lessons Learned from Orange County

Chapter 8 Barings Bank PLC

Barings Bank PLC

Nick Leeson: From London to Jakarta to Singapore

What Was Leeson Supposed to Be Doing at BFS?

Risk Notepad 8.1

Five Eights Account

Risk Notepad 8.2

Errors Accounts

Leeson's Trading Strategy: Doubling

Risk Notepad 8.3

Doubling

Funding Margin Calls

Risk Notepad 8.4

Leeson's Most Flagrant Falsification Scheme

Net Profit/loss Profile of Leeson's Exposures

Beyond Irony: The Barings Failure in a Broader Time Frame

A Bank for a Pound

Aftermath of the Barings Failure

How Could Barings Have Caught Leeson Sooner?

Chapter 9 Long-Term Capital Mismanagement

Risk Notepad 9.1

What Is a Hedge Fund?

LTCM: The Company

LTCM'S Investment Strategy

LTCM'S Impressive Performance: 1994-1997

LTCM'S Contributions to Efficient Markets

Why and How LTCM Failed

Risk Notepad 9.2

What Is Contagion?

The Fed, Warren Buffett, and the Rescue of LTCM

Risk Notepad 9.3

Another Look at Warren Buffett's Offer for LTCM

Conclusions and Lessons

Epilogue

Appendix 9.1

Primer on LTCM's Major Trades and Financial Instruments

Appendix 9.2

UBS and the LTCM Warrant Deal

Chapter 10 Amaranth Advisors LLC: Using Natural Gas Derivatives to Bet on the Weather

Amaranth Advisors LLC

Natural Gas Markets

Amaranth's Natural Gas Trading Strategy and Performance: 2005-2006

2005: Using Long Calls to Bet on the Weather

2006: Using Futures and Spreads to Bet on the Weather

Amaranth's Directional Bets: Short Futures Positions

Amaranth's Relative Value Bets: Long and Short Spread Positions

Amaranth Seeks to Unwind Its Positions

2007: Follow the Money

Follow the Lawsuits

What Caused Amaranth's Catastrophic Losses?

Inadequate Risk Management Practices

Lack of Liquidity

Huge Open Positions in Natural Gas Futures Contracts

Net Investor Withdrawals

Competitors' Reactions to Amaranth's Financial Crisis

Extraordinarily Large Movements in Market Prices

Explosion or Implosion? Who Got Hurt?

Questions Remaining after Amaranth's Fall

Did the Futures Markets Function Effectively?

Did Amaranth Dominate the Natural Gas Futures Markets?

Did Amaranth Engage in Excessive Speculation?

Did Amaranth Commit Regulatory Arbitrage?

Did Amaranth Manipulate the Price of Natural Gas?

CFTC versus FERC

What Is Price Manipulation?

Outline placeholder

MotherRock LP

Centaurus Energy

Price Manipulation on February 24, 2006?

Price Manipulation on April 26, 2006?

Issues Relating to the Price Manipulation Charges against Amaranth

What Happened to the CFTC and FERC Suits?

Chapter 11 Société Générale and Rogue Trader Jérôme Kerviel

Société Générale (SocGen)

Jérôme Kerviel (JK)

Back, Middle, and Front Office Jobs at SocGen

Arbitraging Turbo Warrants

What Are Plain Calls and Puts?

What Are Turbo Warrants?.

Primer: Hedging Purchases and Sales of Turbo Warrants to Customers

Primer on Arbitraging Turbo Warrants

How JK Built His Mountainous Positions

2005

2006

2007

2008

JK's Fraudulent Methods

Gaining Unauthorized Access to SocGen's Computer Systems

Using Contract Cancellations and Modifications to Mask Positions and Risks

Entering Pairs of Offsetting Trades at Artificial Prices

Posting Intra-monthly "Provisions"

Exploiting Supervisor Turnover

Navigating SocGen's Dysfunctional Risk Management System

Using Process Time Lags to Avoid Detection

Using Net Positions to Hide Enormous Gross Positions

Exploiting Unrealized (versus Realized) Profits

Playing the Law of Averages

Reluctance to Take Vacations

Using "Technical Counterparties" for Trades

Dealing with Middle Office and Back Office Inquiries

How JK Was Caught

Paying the Piper

Did SocGen Know about JK's Fictitious Trades?

Network Incentives: Why Did JK Go Undetected for So Long?

SocGen's Bonus Incentives

Doubling Strategies, Prospect Theory, and Survival Theory

Prospect and Survival Theory

SocGen's Risk Management Reforms

Chapter 12 AIG: Two Roads to Ruin

AIG: The Company

AIG-INV

AIGFP

Securitization: MBS, ABS, CDOs, and MBOs

AIGFP's Credit Derivative Portfolios

AIGFP's Two Arbitrage Portfolios

AIGFP's Two Regulatory Portfolios

Major Keys to AIGFP's Initial Success

AIG's Chief Regulators

What Went Wrong?

AIG's Credit Protection Exposures

The Sources of AIGFP's Liquidity Problems

Risk Measures

Securities Lending at AIG

AIG's Risky Securities Lending Operations

AIG's Bailout

What If AIG Was Allowed to Fail?

Regulatory Capital Risks

AIG's Insurance Affiliates' Risks

Contagion Risks.

Criticisms of the AIG Bailout.

Notes:

Description based on publisher supplied metadata and other sources.

Part of the metadata in this record was created by AI, based on the text of the resource.

ISBN:

3-11-155357-4

OCLC:

1569922867