Jpmorgan Mortage Essay

3311 Words Apr 6th, 2016 14 Pages
Derivatives Analysis
(2015 Term 1B) – Project Report

Group Member:

Zhou Xu
Gu Hui
Chen Fengyun
Deng Xinping
Yuan Zhongping
Guan Tingting

Lee Kong Chian School of Business
Singapore Management University

5 November 2015

Table of Contents 1. Introduction 3 2. Background 3 2.1 Amaranth Overview 3 2.2 Natural Gas Market 4 2.3 Events in September 2006 5 3. Trading Strategy 7 3.1 Basic Strategy 7 3.2 Rationale for the Strategy 8 4. Risk Management 10 4.1 Market Risk 10 4.2 Liquidity Risk 11 4.3 Funding Risk 11 5. Conclusion 12

1. Introduction
On September 18, 2006, Nick Maounis, the founder of Amaranth Advisors LLC, issued a letter to his investor states that it had lost $4
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Mr. Hunter started his career as an option trader in a Canadian company called TransCanada Pipelines, which was the largest marketer in Canadian natural gas. He was praised by his boss and colleagues as an innovative thinker, and gained some reputation in energy trading. In 2001, Mr. Hunter joined Deutsche Bank as vice president in natural gas trading division. He experienced large fluctuation in profit and loss there because of his aggressive investing style. His team earned $76 Million from January to November 2003 but lost $52 Million in the month after. After being demoted from the head of natural gas trading to research analyst, Mr. Hunter left Deutsche Bank and started his Amaranth career. Initially, he was allocated in the team of energy and commodity trading under Mr. Harry Arora who was a former trader in Enron. This stable structure was broken in 2005 when Mr. Hunter threatened to leave the company. Mr. Maounis accepted the requirements of Mr. Hunter by allowing him to work independently from Mr. Arora. Besides, Mr. Hunter was promised to receive 15% of the operating profits, which was about one time larger than before. Finally, Mr. Hunter was allowed to work in his hometown of Calgary, Canada. In a word, the management structure of the traders had changed.
Another important change took place in investment strategy. As described before, Amaranth focused on diversified investment strategies including convertible bond arbitrage, merger arbitrage, utilities

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