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A USD400mn Lesson in Risk Management of Structured Equity Derivatives

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This case reviews the market risks resulting from issuing and managing autocallable equity-linked instruments by a bank in the Asian markets. A number of weaknesses in the risk management framework of the issuing organization ultimately led to significant losses that could have been avoided. The purpose of the case is to identify these potential weaknesses and suggest what could have been done to improve the risk management framework of the organization.

The case illustrates the two possible generic explanations for the losses at the issuer. On the one hand, some people involved first blamed the deficiency of the risk model and the quantitative framework; others put more blame on the structural shortcomings in the risk management framework.

Learning Objective:

  • Provide students with a basic understanding of how market risk is evaluated in a real-life example
  • Examine the issues facing a financial organization when deciding complex market risk exposures
  • Learn how to identify potential shortfalls in the risk management framework of a financial institution
  • Understand the typical and basic best-practice risk governance in a financial institution

Year of Publication: 2023
Ref. No.: 23/754C
Discipline: Finance & Investments, Organizational Behavior and Leadership, Strategy & General Management
Industry: Banks & Diversified Financials
Country: Hong Kong SAR
Languages: English
Pages of Text: 14