Abstract

During the 1993-1995 period, the german conglomérat Metallgesellschaft AG (MG) incurred massive losses through oil-operations of their american subsidiary MGRM. By hedging long-term delivery committments with short-term futures and swaps (Stacked-Hedging), MGRM found itself facing large liquidity-constraints when oilprices fall dramatically in 1993. In order to avoid bankruptcy, MGRM closed the bulk of their delivery-programs in January 1994. A still highly controversial issue is the identification and possible avoidance of the MG collapse. The implemented Hedge-Ratio and speculation on basis-risk were supposed to explain only part of the losses. Still open is the question how to calculate the market-value of the combined deliveryand hedging-program of MGRM. By controlling liquidity-risk through the Value-at-Risk approach, the potential losses of the delivery-program could have ex-ante been easily identified.