Benefits and Risks of Using Financial Derivatives

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MN-M505 Derivatives and Risk Management

Individual Coursework Assignment


Coursework Brief

Warren Buffet once described derivatives as ‘financial weapons of mass destruction’. Discuss the benefits and risks to firms of hedging with derivatives.

Reading for this coursework will be given below

Key Marking criteria will include:

  • Initiative: originality, innovativeness of answer
  • Assignment Structure: clarity of aims, objective, structure and presentation
  • Quality of Writing: Readability and ability to convey key message(s) concisely
  • Understanding of established knowledge
  • Insightfulness of Analysis: Interest and usefulness of findings, conclusions drawn.
  • Understanding: Assignment demonstrates students have understood key topics
  • Overall Quality of Assignment

Please note:

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Derivatives – risks and benefits: References

Berkshire Hathaway Annual Report (2002)

Edwards and Cantor ‘The collapse of Metallgesellschaft, unhedgeable risks, poor hedging strategy or just bad luck’, The Journal of Futures Markets, 1995, issue 3, pgs 211-264 (available through library electronic journals – EBSCO)

Sill K ‘The economic benefits and risks of derivative securities’, Federal Reserve Bank of Philadelphia, Jan/Feb. 1997 pgs. 15-26

Case study: ‘Not Just One Man – Barings’ – download from

Case study of rogue trader John Rusnak: ‘How to lose a billion’ – download from:,3604,818620,00.html

Corporate risk hedging strategies and shareholders’ value creation: The South West Airlines case, Kellogg School of Management Discussion Paper, Massimo Mancini (2009)

Richard Cobbs and Alex Wolf ‘Jet Fuel Hedging Strategies: Options Available for Airlines and a Survey of Industry Practices’ Kellogg School of Management Discussion Paper

Spring 2004

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