12. The Court finds the BC to be an economically sound method, recognized
by industry practice, of measuring the Hedge Loss here associated with
changes in interest rates. Capital introduced sufficient evidence to show
how the BC operates to measure loss from the hedging transactions at
issue by demonstrating that the BC's underlying assumptions largely apply
here. Capital introduced testimony to show that it sought to hedge
interest rate risk and achieve a one-to-one ratio between its mortgage
and hedge portfolios. Moreover, the Position Summary Reports provide
adequate indication that Capital in fact did maintain a nearly one-to-one
13. However, as stated by Reider and evinced by the Position Summary
Report for September 30, 1998, which indicated that the portfolios had
greater deviation during the months of August, September and early
October 1998, Capital changed its hedging strategy and appears to have
been underhedged slightly at that time. Thus, the Court reduces the
figure by five percent, or $103,320.
14. The five percent figure is derived from the deviation between the
mortgage and hedge portfolios during late 1998 and meant to reflect the
market instability of the time and Capital's change in hedging practice.
This discount is especially appropriate in light of Capital "s lack of
aggregate data or daily Position Summary Reports reflecting the
performance of its Mortgage and Hedge Portfolio after the Revised
Agreement went into effect. According to Carron's statistical analysis,
such a reduction in fact would increase the accuracy of the award to
15. Thus, the Court finds that Capital has incurred $1,963,080 in Hedge
Losses associated with the Stanford Commitment. This figure, even before
adding the costs and fees incurred, exceeds the Refund Amount.
16. Accordingly, Stanford owes Capital the sum of $1,658,075.40, which
represents the amount of costs, fees and Hedge Losses that Capital
incurred in hedging the Stanford Commitment, less the Refund Amount.
For the foregoing reasons, it is hereby
ORDERED that the Clerk of Court enter judgment in favor of Defendant
Nomura Asset Capital Corporation in the amount of $1,658,075.40; and it
ORDERED that the Clerk of Court close this case.