When price deviation never corrects

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Firms Involved

  • Amaranth Advisors

Year of the event


Description of the case

Amaranth Advisors was a multi-strategy hedge fund founded in 2000 by Nick Maounis. In 2006, 75% of its returns were generated by the Energy division headed by Brian Hunter. He was heavily betting on natural gas futures. At the end of August, the fund had had a great year, piling several double-digit Month-on-month returns and totaling over $9bn of assets. However, 18 days laters, Nick Maounis was sending a letter to the investors, explaining that the fund had seen its assets shrink by 50% due to losses on natural gas futures trading. The fund was overtaken by Citadel and JP Morgan Chase, and consequently liquidated by Fortress Investment Group. Hunter had implemented a "calendar spread strategy" engaging half of the fund's assets, whereby he was long on winter months and short on non-winter months [1]. He believed indeed that the supply did not precisely match the seasonality of the demand for natural gas. As the losses in September 2006 attest, his view did not materialize in a timely manner, and the heavy leverage he used coupled with the low liquidity of the market got the better of the fund[2].


  • "The markets can remain irrational longer than you can remain insolvent" (apocryphal, attributed to John M. Keynes).
  • Risk Management must be taken seriously. In particular, risk attribution between the various trading streams must be carefully implemented and monitored.


  1. Econcrises.org, CFA Institute, Amaranth Advisors
  2. Hilary Till, EDHEC Risk Institute, The Amaranth Collapse: What Happened and What Have We Learned Thus Far?