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derivates use and failing strategy  of LTCM, 600 words each.

Derivatives Project

Fall 2020 – FIN 4220/6220

Due December 1, 2020


The purpose of this project is to allow you to demonstrate critical thinking skills through the analysis of
a catastrophe in historical derivatives use. Each project will be completed in groups as assigned. Partial
credit may be awarded as appropriate depending on the specific section requirement.

Subject Incident

Each group will be assigned one of the following events:

• Barings Bank

• Metallgesellschaft

• Amaranth Advisors

• Orange County, California


• The Financial Crisis of 2008

Class Presentation 15%

Each group will prepare a 12 minute presentation summarizing your findings from the project. The presenta-
tion may be delivered live or from a recording. Immediately following delivering or playing the presentation
for the class, each group will take 5 minutes of questions.

Written Report 85%

You should prepare a written report that must contain the following sections. Section descriptions contain
guidance on what you should include, but is not all inclusive. You may include additional information as
appropriate. Each section will be given the weight indicated. Section word counts are merely suggestions.

1. Organization Background 15%

Give a brief history of the subject organization. Include details about the organization’s founding
and key events through history. Give background that will help the reader understand why the
organization might pursue an investment strategy that required derivatives.

2. Derivatives Use 15%

Explain how the organization first started using derivatives. Give general specifics about the kinds
of goals the firm had for their derivatives usage. For example, was it to hedge or speculate? you
may include example of successful derivatives usage by the organizaiton.

3. A Failing Strategy 35%

Give a detailed description of the derivatives strategy that failed. Explain how the strategy was
supposed to work and identify what went wrong. Identify any key players and how their actions
affected the outcome. Was there something they could have done to prevent the disaster?

4. Fallout 25%

Explain in detail what happened in the fallout of the catastrophe. Consider if the organization
failed, how it was unwound, criminal or civil legal proceedings, regulatory responses, etc.

5. Conclusion 5%

Provide a synthesis of what you learned from this research project. Summarize your overall


Graduate Student Modification

In addition to the above requirements, graduate student groups must produce a simulation/model showing
how the derivatives trading system worked. You may use real or simulated historical asset prices, depending
on the event you have been assigned. Graduate students’ project sections will be weighted 10%, 75%, and
15% for the presentation, written report, and trading model, respectively.

Other Requirements

1. The written report must contain at least 2500 words
(10% deduction per 100 words below 2500)

2. The written report must be turned in as a PDF
(5% reduction if any other format is used)

3. The simulation/model (graduate students only) must be in Excel format or another pre-approved
(10% deduction if in an unapproved format)

4. The written report must be well-formatted
(5% deduction for poor formatting)

5. The written report must include a title page with key information, including word count.
(5% deduction if lacking)

6. All external sources of data and references must be cited in a consistent format
(15% deduction for failure to cite)


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