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Derivatives Project and its purpose

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 presentation 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 its derivatives usage. For example, was it to hedge or speculate? you may include examples of successful derivatives usage by the organization.

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 findings.


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.