Tuesday, October 10, 2006

Six Early Lessons from Amaranth

Noted commodities expert Hilary Till, Research Associate with the EDHEC Risk and Asset Management Research Centre and Principal of Premia Capital Management, finds in a paper titled EDHEC Comments on the Amaranth Case, Early Lessons from the Debacle
"that the fund employed a Natural Gas spread strategy that would have benefited under a number of different weather-shock scenarios. These were economically defensible, although the scale of their position-sizing relative to the capital base clearly was not. Using a returns-based analysis to infer the sizing of positions, it is found that the Amaranth’s energy portfolio likely suffered an adverse 9-standard-deviation event on the Friday (September 15th) before the fund’s distress became widely known."

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