EconPapers    
Economics at your fingertips  
 

How to Lose Money in Derivatives: Examples from Hedge Funds and Bank Trading Departments

Sebastien Lleo and William T. Ziemba

Chapter 22 in The World Scientific Handbook of Futures Markets, 2015, pp 689-750 from World Scientific Publishing Co. Pte. Ltd.

Abstract: What makes futures hedge funds fail? The common ingredient is over betting and not being diversified in some bad scenarios that can lead to disaster. Once troubles arise, it is difficult to take the necessary actions that eliminate the problem. Moreover, many hedge fund operators tend not to make decisions to minimize losses but rather tend to bet more doubling up hoping to exit the problem with a profit. Incentives, including large fees on gains and minimal penalties for losses, push managers into such risky and reckless behavior. We discuss some specific ways losses occur. To illustrate, we discuss the specific cases of Long Term Capital Management, Niederhoffer's hedge fund, Amaranth and Société Générale. In some cases, the failures lead to contagion in other hedge funds and financial institutions. We also list other hedge fund and bank trading failures with brief comments on them.

Keywords: Futures Markets; Pricing; Risk Management; Futures Trading; Stock Indexes; Interest Rates; Futures Prices; Portfolio Theory; Hedge Funds; Foreign Exchange (search for similar items in EconPapers)
Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.worldscientific.com/doi/pdf/10.1142/9789814566926_0022 (application/pdf)
https://www.worldscientific.com/doi/abs/10.1142/9789814566926_0022 (text/html)
Ebook Access is available upon purchase.

Related works:
Working Paper: How to lose money in derivatives: examples from hedge funds and bank trading departments (2014) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:wschap:9789814566926_0022

Ordering information: This item can be ordered from

Access Statistics for this chapter

More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().

 
Page updated 2025-03-23
Handle: RePEc:wsi:wschap:9789814566926_0022