TXU bankruptcy holds lessons for risk managers
‘This will never happen’ is no alternative to proper planning
This will never happen. Those words were uttered to me years ago, when they came from a young and successful trader sitting across the table from myself and another colleague, who was a risk manager. The trader was managing a large portfolio of natural gas options, which was exposed to a devastating loss if natural gas prices dropped below $4.50 per million British thermal units.
Our intention was not to challenge the trader or to compel him to trim his positions – in fact, we respected him and
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