Metallgesellschaft: A prudent hedger ruined, or a wildcatter on NYMEX?

Pirrong, Stephen Craig

doi:10.1002/(sici)1096-9934(199708)17:5<543::aid-fut3>3.0.co;2-f

Cited by 35 publications

(18 citation statements)

References 18 publications

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“…Then the choice of the Future maturity becomes a key issue. Edwards and Canter (1995) and Pirrong (1997), among others, have shown that the spectacular demise of the firm Metallgesellschaft (MG) was due to its strategy of holding long term oil Futures contracts hedged by a roll over of short term Futures. Doing so, they were assuming that oil forward prices were at any date increasing with the time-to-maturity (a so-called contango shape of the forward curve) and this assumption, not substantiated by theory nor empirical evidence, took Metallgesellschaft to bankruptcy.…”

Section: Introductionmentioning

confidence: 99%

WTI crude oil Futures in portfolio diversification: The time-to-maturity effect

Geman

Kharoubi²

2008

Journal of Banking & Finance

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Section: Introductionmentioning

confidence: 99%

WTI crude oil Futures in portfolio diversification: The time-to-maturity effect

Geman

Kharoubi²

2008

Journal of Banking & Finance

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“…While deterministic volatility functions are sometimes considered (see Dumas, Fleming and Whaley, 1998), most researchers adopt the Generalized Autoregressive Conditional Heteroscedasticity (GARCH) framework. Specifically, the bivariate GARCH models are widely adopted to examine the behavior of the spot and futures prices and the dynamic hedge strategy (Baillie and Myers (1991); Myers (1991); Lien and Luo (1994); Pirrong (1997)). …”

Section: Time-varying Hedge Ratiosmentioning

confidence: 99%

Some Recent Developments in Futures Hedging

Lien

Tse

2002

Journal of Economic Surveys

165

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The use of futures contracts as a hedging instrument has been the focus of much research. At the theoretical level, an optimal hedge strategy is traditionally based on the expected-utility maximization paradigm. A simplification of this paradigm leads to the minimum-variance criterion. Although this paradigm is quite well accepted, alternative approaches have been sought. At the empirical level, research on futures hedging has benefited from the recent developments in the econometrics literature. Much research has been done on improving the estimation of the optimal hedge ratio. As more is known about the statistical properties of financial time series, more sophisticated estimation methods are proposed. In this survey we review some recent developments in futures hedging. We delineate the theoretical underpinning of various methods and discuss the econometric implementation of the methods.

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“…3. For discussion of derivative-related losses refer to Kuprianov (1995), Edwards and Canter (1995), Stonham (1996), and Pirrong (1997). 4.…”

Section: Notesmentioning

confidence: 99%

Auditors' Assessment of Hedge Effectiveness

2001

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There is very little authoritative guidance and very little is known about how auditors assess the effectiveness of derivative hedges. This study investigates the approaches undertaken by auditors in the absence of such guidance. Descriptive evidence on rm procedures was collected in 1997 from the technical of ces of each of the then Big 6 audit rms in Australia. This was achieved by means of a structured questionnaire, supported with evidence from speci c audits. From the responses a diversity of procedures was discernible. There was not a consensus regarding the hedge qualifying criteria necessary for hedge accounting. The rms differed in their perceptions as to whether a high degree of inverse correlation is a signi cant criterion for determining the applicability of hedge accounting. When they did consider a correlation measure, there was some similarity in the range of correlation considered to be effective. Auditors primarily relied on a review of client calculations when examining hedge effectiveness.

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Metallgesellschaft: A prudent hedger ruined, or a wildcatter on NYMEX?

Cited by 35 publications

References 18 publications

WTI crude oil Futures in portfolio diversification: The time-to-maturity effect

WTI crude oil Futures in portfolio diversification: The time-to-maturity effect

Some Recent Developments in Futures Hedging

Auditors' Assessment of Hedge Effectiveness

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