A Report On Leesons Exposure Profile - 2204 Words

In time, Leeson began selling options. This form of supplementing his actions breached Barings Banks’ rules. Following 1992, Lesson’s option sales increased dramatically as he was trying to meet the various margin calls. To do this he focused on selling short straddle option contracts. This type of option and the associated profit and loss profile Leeson used will be described in further detail below. Leeson’s Exposure Profile During the two years that Leeson played the Nikkei 225, starting in mid-1992, the index fluctuated heavily. During these fluctuations, Leeson would flip his future contract positions if the market moved continuously in the unfavourable direction. However, most of the damage was done towards the late end of this period in mid-1994. In June 1994, Leeson believed that the Nikkei 225 was going to rise in value, so he purchased a large amount of futures contracts. Instead of rising, the market took a dive, dropping nearly 22% by the collapse of the bank at the end of February 1995. This triggered frequent margin calls in Leeson’s accounts on both of the exchanges he traded on, the OSE and SIMEX. Due to the magnitude of the losses, he was not able to fund the variation margin with the various resources that the bank had, and was forced to find an alternative means of gathering funds. Image modified from: Nikkei 225 Index Chart - Yahoo! Canada Finance. (n.d.). Retrieved March 28, 2016, fromShow MoreRelatedOperational Risk Management50825 Words   |  204 Pagesdisabling under some circumstances.† â€Å"Blocking the emergency core cooling system over this period and permitting operation for a prolonged period with a vital safety system unavailable are indicative of an absence of safety culture.† Quoted from a report of the International Atomic Energy Agency (IAEA) on the Chernobyl accident on April 26, 1986.1 As experience shows, the sure way to disaster is to consistently neglect existing risks until everybody is convinced that nothing will happen anyway