1980
Silver Thursday and the Hunt brothers
Two brothers tried to corner the silver market with borrowed money, and an emergency rule change to stop the squeeze crashed the price and their fortune.
Derivatives case studies
Forty-two episodes taught in Risk Management and Derivatives at Shanghai Jiao Tong University. Each one tells what happened, gives the data and draws the lesson. Most also work through the mechanics and the mathematics in the language of the course.
No case has this theme.
The 1980s
1987
Black Monday and portfolio insurance
A dynamic hedging strategy that sold futures automatically as prices fell is widely blamed for amplifying the largest one-day stock market crash on record.
The 1990s
1993
Metallgesellschaft's rolling-hedge collapse
A firm hedged long-dated fixed-price oil supply contracts by rolling short-dated futures, and a price fall drained cash faster than the hedge could prove its worth.
1994
Orange County, California and Robert Citron
A county treasurer borrowed short and invested long to bet on falling rates, and a sharp rate rise triggered the largest municipal bankruptcy in US history at the time.
1994
Procter & Gamble versus Bankers Trust
A leveraged formula buried in a swap's floating leg turned a small rate rise into a large corporate loss.
1995
Barings Bank and Nick Leeson
A single trader's hidden Nikkei futures and short-straddle positions bankrupted Britain's oldest merchant bank in weeks.
1995
The '327' China government bond futures incident
A broker dumped a massive last-minute sell order on a government bond futures contract to avoid a squeeze, and regulators shut the whole market down for 18 years.
1998
Long-Term Capital Management
A hedge fund used huge leverage to bet on small pricing gaps closing, and a shock in an unrelated market widened every spread at once.
The 2000s
2000
David Li's Gaussian copula and the one number that broke
A model compressed the correlation between many mortgage defaults into a single number, calibrated on data where house prices had never fallen nationally.
2000
Palm and 3Com's negative stub
A parent company's stake in its own spun-off subsidiary implied a negative value for the rest of the business, and short-sale constraints stopped arbitrage from closing the gap.
2004
China Aviation Oil (Singapore) jet-fuel options collapse
A state-owned jet-fuel trader sold speculative options against rising oil, and doubling down on losing positions ended in bankruptcy.
2005
State Reserve Bureau copper short (Liu Qibing)
A Chinese state trader built a large short position on LME copper betting prices would fall, and got caught in a squeeze as prices kept rising.
2006
Amaranth Advisors and the natural-gas spread bet
A hedge fund's concentrated calendar-spread bets on natural gas futures unwound in days when the spread moved against it.
2007
Goldman Sachs Abacus 2007-AC1
A bank let a hedge fund that was secretly betting against a synthetic mortgage-bond deal help pick what went into it, then sold the deal to other investors.
2007–08
Hong Kong accumulators, 'I kill you later'
Banks sold retail and corporate clients in Hong Kong a leveraged structure that bought cheap stock in a rising market but forced double purchases in a falling one.
2007
Northern Rock
A UK bank funded long mortgages with short-term wholesale borrowing, and when that funding dried up it suffered Britain's first bank run in a century.
2007–2009
The 2007-08 chain: BNP to Northern Rock to Bear to Lehman to AIG
A funding freeze that started with two suspended funds spread bank by bank until the world's fourth-largest investment bank failed and the largest insurer needed a rescue.
2008
CITIC Pacific's Australian-dollar accumulators
A Chinese conglomerate sold FX accumulator contracts to hedge an Australian project, and the currency moved the wrong way at leveraged scale.
2008
China Eastern and Air China's 2008 fuel-hedge collars
Two Chinese state airlines used ratioed zero-cost collars to hedge fuel costs, and the structures turned into large losses when oil crashed.
2008–2011
Jefferson County sewer swaps
A county used swaps to make variable-rate sewer bonds behave like fixed-rate debt, and basis risk plus corruption charges ended in the largest US municipal bankruptcy of its time.
2008
Societe Generale and Jerome Kerviel
A junior trader hid a huge directional bet on European equity index futures behind fake offsetting trades until the unwind cost billions.
2008
Southwest Airlines fuel hedging
A disciplined multi-year fuel hedging programme saved billions, but even a well-run hedge produced a mark-to-market loss when oil crashed.
2008
The 2008 US short-sale ban
A temporary ban on short-selling financial stocks after Lehman's collapse pushed apparent put-call parity violations that were really the priced cost of the ban.
The 2010s
2012–2024
LIBOR manipulation, its death, and SOFR
Banks were caught manipulating the benchmark rate underlying trillions of dollars of contracts, and regulators spent a decade replacing it with SOFR.
Recurring
CNY and CNH: one currency, two markets
China's managed onshore yuan and free-floating offshore yuan trade at different rates, and the gap widens whenever capital controls are under stress.
Since 2015
China's index-futures discount and the 2015 restrictions
After the 2015 stock-market crash, China's exchange restricted index-futures trading, and futures traded persistently below fair value for years.
2018
OptionSellers.com and the naked natural-gas options
A fund manager sold uncovered options on natural gas as a steady income strategy, and one sharp price spike wiped out client accounts and left them owing money.
2019
The SSE 50 ETF option that rose 192 times in a day
A deep out-of-the-money option two days from expiry rose 192 times in one morning when the market jumped, then expired far below its peak.
The 2020s
2020
Bank of China's Crude Oil Treasure
A retail product tracking WTI rolled into the contract that went negative, and thousands of retail investors ended up owing the bank money.
2020
Gold's London-COMEX EFP dislocation
Grounded flights and shut refineries jammed the physical delivery chain for gold, blowing out the normal cash-and-carry spread between London and New York.
2020
Negative WTI and floating storage
Storage at the delivery point ran out of room, and traders holding expiring oil futures paid buyers to take the contracts off their hands.
2020
The Treasury basis trade and March 2020
Leveraged funds bet on a tiny gap between Treasury bonds and Treasury futures, and a dash for cash forced a rapid, disorderly unwind.
2021
Archegos Capital Management and the hidden swap book
A family office used total-return swaps with several banks at once to build a hidden, concentrated equity position that unwound in days.
2021
GameStop, Robinhood and the NSCC margin call
A retail trading frenzy in one stock triggered a huge overnight clearing-house collateral call that nearly froze a broker's trading.
2022
European utilities' 2022 margin calls
Utilities that had correctly hedged future power output ran short of cash when margin calls on their winning futures hedges doubled.
2022
LME nickel squeeze and Tsingshan
A huge short position in nickel was squeezed as prices doubled in hours, and the exchange cancelled trades to stop the clearing house failing.
2022–2024
Snowball autocallables and the CSI 500/1000 knock-ins
A popular retail product paid steady income unless the index fell through a barrier, and a market slide triggered mass knock-ins at the same time.
2022
The UK LDI gilt crisis
Pension funds used leveraged interest-rate hedges that were working exactly as designed, until a budget shock triggered a collateral spiral that forced the central bank to step in.
2023
Eurodollar to SOFR: the 26.161bp migration
When the market moved from LIBOR-based Eurodollar futures to SOFR-based contracts, a fixed spread converted every outstanding position.
2023
Silicon Valley Bank collapse
A bank funded long-dated bonds with short-term deposits, and rising rates plus a bank run turned an unrealised loss into a failure within days.
2023
Swap Connect and the Shanghai Clearing House
China opened its interest-rate swap market to overseas investors through a cross-border link, deliberately designed to avoid past clearing failures.
2025
The Loto-Quebec lottery choice
A real lottery winner's choice between a lump sum and payments for life is used to teach compounding, the zero curve and duration.