metallgesellschaft case

[simhan]

Hi David,

It was an excellenct screencast on Metallgesellschaft disaster. But can you tell me what they could have done which would have prevented the disaster.
thanks for the same
from
simhan

 

[Mudaltiru]

Excellent.
Thanks David
mudaltiru

 

[David Harper CFA FRM]

Simhan & Mudaltiru,

Thanks for finding it helpful. About "what could have been done," Crouhy says:

* MG should have mitigated the impact by requiring periodic cash settlements from its customers on the forwards (!)

* If managers had not taken such a large position in long futures, or if they had at least used put options as a hedge for their position, then the magnitude of the cash flow problem could have been reduced

* "Stress testing would have been helpful..."

David