ALLIED LYONS

Laurent L Jacque

Chapter 8 in Global Derivative Debacles:From Theory to Malpractice, 2015, pp 105-124 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Allied-Lyons — better known for its teabags and its teacakes than for its forays into the currency market—announced on March 17, 1991 a stunning $269 million foreign exchange loss (approximately 20% of its projected profits for 1991). Facing a sluggish economy, its treasury department had developed a sophisticated scheme that gambled not so much on the absolute level of the dollar/sterling exchange rate as on its volatility. This gamble was achieved through a combination of currency options known as straddles and strangles that in this particular case would have produced profits had the exchange rate turned out to be less volatile than the option premium implied…

Keywords: Derivatives; Debacles; Options; Swaps; Futures; Forwards; Financial Engineering; Market Manipulation; Rogue Traders; Speculation; London Whale (search for similar items in EconPapers)
Date: 2015
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