Title: Metallgesellschaft's hedging debacle: what went wrong and lessons learned

Authors: Anand Shetty; John Manley

Addresses: School of Business, Iona College, New Rochelle, NY 10801, USA ' School of Business, Iona College, New Rochelle, NY 10801, USA

Abstract: This paper reviews various aspects of the energy-derivatives marketing and hedging program of Metallgesellschaft (MG) and its hedging strategy. Specifically, the paper looks at the program's risk exposures, cash flow problems, and the developments that led to the termination of the program by MG's management. The criticisms of the hedging program, the impact of MG's action of abruptly terminating the program, and whether the program involved speculation are discussed. The paper concludes with observations on the lessons learned from MG's hedging debacle.

Keywords: stack-and-roll hedge; strip hedge; basis risk; rollover risk; backwardation; contango.

DOI: 10.1504/IJBCRM.2019.098802

International Journal of Business Continuity and Risk Management, 2019 Vol.9 No.2, pp.97 - 116

Received: 21 Mar 2018
Accepted: 16 Jul 2018
Published online: 02 Apr 2019 *

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