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- Title
The Amaranth Debacle: A Failure of Risk Measures or a Failure of Risk Management?
- Authors
Chincarini, Ludwig B.
- Abstract
The speculative activities of hedge funds have generated considerable interest among market agents and regulatory institutions. In September 2006, the activities of Amaranth Advisors, a large-sized Connecticut hedge fund in the natural gas market resulted in serious losses. By September 21, 2006, Amaranth had lost roughly $4.35B over a 3-week period or one half of its assets due to its activities in natural gas futures and options in September. Shortly thereafter, Amaranth fund was liquidated. This article presents a brief investigation of the possible causes behind this spectacular hedge fund failure and draws lessons by assessing Amaranth's trading activities within a standard risk management framework. Even by conservative measures, Amaranth was engaging in highly risky trades which in addition to high levels of market risk involved significant exposure to liquidity risk--a risk factor that is seemingly difficult to manage.
- Subjects
CONNECTICUT; HEDGE funds; HEDGING (Finance); COMMERCIAL agents; FINANCIAL institutions; AMARANTH Advisors LLC
- Publication
Journal of Alternative Investments, 2007, Vol 10, Issue 3, p91
- ISSN
1520-3255
- Publication type
Article
- DOI
10.3905/jai.2007.700227