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THE VOLKSWAGEN SHORT SQUEEZE Case Solution & Answer

Although the facts of the case did happen (the unusual reaction of stock prices), the scenario is purely hypothetical and illustrates the sequence of events on the day of an investment bank as requested by an Executive Porsche for call options on shares of Volkswagen. Mark Johnson, CEO of an investment bank based in New York midsize (and proud owner of a Porsche) receives a phone call from Anne, a former classmate at Cal Tech and now a senior executive of Porsche, the manufacturer German automaker. She asked Mark if the investment bank would be willing to buy call options sold Volkswagen shares. Marcos, puzzled by the request, he asks his team of experts to examine the details. Why Anne is called Mark? What is the origin of this unusual offer? No banks in Germany? Several characters are introduced to give different views on the effects of exercise options assessment. The case presents a unique learning opportunity as it combines important educational and academic goals (dynamic replication option pricing and delta hedging) with other issues like fast cars like Porsche and the rise of the share price of Volkswagen . It also gives an overview of the practices of investment banks (or other financial institution) and how they may affect the results. Learning Objectives: This case is based on the year 2008 and deals with the temporary care of Volkswagen by Porsche and the role of derivatives (hedging and delta) that contributes to the price reaction of the unusual action of Volkswagen. This is a unique learning opportunity as it combines important educational and academic goals (dynamic replication option pricing and delta hedging) with other issues like fast cars like Porsche and increased the price of Volkswagen shares from ? 34 over 1000? per share at any time during the period following the case.
by
Salvatore Cantale,
Michael Sorell
Source: IMD
12 pages.
Release Date: October 8, 2012. Prod #: IMD568-PDF-ENG
VOLKSWAGEN short squeeze resolving cases

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