Barings Bankruptcy and Financial Derivatives
This is the first systematic source which tries to explain how and why the 233-year old and the World's oldest merchant bank went into bankruptcy in a few days. It includes three parts with 10 chapters. Part I first describes what happened, then traces back the birth and historical glory of the Barings bank and family, and finally describes how it was sold to the Internationale Nederlanden Groep (ING). As many terms of financial derivatives are used in the first part, we try to provide an easy and systematic way to clarify the related financial derivatives products in Part II. This part first gives a general discussion of financial derivatives and a brief review of the historical development, growth, and magnitude of the financial derivatives markets. It then concentrates on futures and options in two chapters. Finally, we explain the hedging and speculating functions of financial derivatives and how they can be used in combination to achieve particular objectives. Part III provides necessary information on the Japanese financial markets and then analyzes how a single trader could have so much power as to bring about Barings fall. Finally, we try to provide the lessons from this event.
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THE HISTORY OF A GREAT POWER
AN INTRODUCTION TO FINANCIAL DERIVATIVES
FORWARDS AND FUTURES
FUNCTIONS OF FINANCIAL DERIVATIVES
GENERAL DISCUSSIONS AND LESSONS
LESSONS FROM THE CRISIS
TABLE OF THE CUMULATIVE
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Act Vol Wed Black-Scholes bond prices buyer call and put call option price capital CBOT Chapter commodity corresponding put option currency delta derivative assets dividend example expiration February February 27 Figure financial derivatives financial futures financial markets forward contract forward price Francis Baring futures and options futures contracts FUTURES EXCHANGE futures markets futures trading hedging increased index futures interest rate Japan Japanese stock market Japanese yen Kobe earthquake Leeson leverage effect long positions losses margin requirements million Nikkei futures Nikkei Index Nikkei-225 Index Open Int Wed option contract OPTIONS EXCHANGE options trading Osaka Osaka Securities Exchange payoff pattern portfolio premium prespecified price price limit pricing formula profit put option price put-call parity resp risk Section settlement price short straddles SIMEX speculating spot price Stock Exchange stock-index futures strangle strike price synthetic long futures time-to-maturity trading volume underlying asset price underlying markets vol Tues volatility wheat price