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Jpmorgan Mortage

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Submitted By zhouxu8888
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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 billion, about half of the $9.25 billion fund, largely due to its activities in natural gas futures and options market in September, After less than two weeks of the announcement, at the date that Amaranth being liquidated, these loss aggravated to $6.6 billion. The tremendous loss making Amaranth’s collapse the third largest trading loss in the history.
In this paper, we are going to analyse the background of the company, the strategy of Amaranth’s activity and the risk involves in it, in order to get a comprehensive understanding of the causes and details of the Amaranth’s Collapse.

Background
Amaranth Overview
Amaranth Advisor L.L.C was a hedge fund opened by Mr. Nicholas Maounis in Greenwich, Connecticut, which was a town owning many celebrated hedge funds including Long-Term Capital Management and Paloma Partners. When Amaranth started its operation in May, 2000, it was designed to be a multi-strategy hedge fund based on different investment strategies. However, several years later, tremendous changes occurred in different aspects of the operation of Amaranth.
In 2004, Amaranth employed Mr. Brian Hunter who was believed to…...

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