Date of Award:

12-2022

Document Type:

Dissertation

Degree Name:

Doctor of Philosophy (PhD)

Department:

Applied Economics

Committee Chair(s)

Ryan Bosworth

Committee

Ryan Bosworth

Committee

Tyler Brough

Committee

Pedram Jahangiry

Committee

Sherzod Akhundjanov

Committee

Danjue Shang

Committee

Man-Keun Kim

Abstract

In the fall of 1993, German company Metallgesellschaft, Ag experienced a loss of over one billion dollars. This loss resulted from its hedging strategy, and was one of the largest losses of its kind at the time. Naturally this raised interest regarding what caused these huge losses, and called into question the events and circumstances surrounding and leading up to this disaster. There are two basic schools of thought regarding Metallgesellschaft's strategy. The first is that it was a good strategy and had the potential to be successful and profitable. The other is that its strategy was risky and speculative. Despite the abundance of literature surrounding this event, there has been so resolution. My research looks to remedy this by directly confronting the controversy. The methodologies I use can answer once and for all if Metallgesellschaft unnecessarily took on too much risk, or had a good strategy. I find that MGRM's hedging strategy would have been profitable if it hadn't been prematurely ended. I further find that an options like strategy would have alleviated MGRM's cash flow problem.

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