Long Term Capital Management (LTCM)
About the Lecture
The lecture Long Term Capital Management (LTCM) by Edu Pristine is from the course ARCHIV Case Study: PRM. It contains the following chapters:
- Credible Founders
- Strategy
- Timeline of rescue
- Blame
- Lessons
Author of lecture Long Term Capital Management (LTCM)
Edu Pristine
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Excerpts from the accompanying material
... USD 7 b in 1993 & generated more than 40% returns in first two years. Bring a hedge fund, it was largely unregulated. Strategy: Convergence trading on the assumption that similar instruments that differ in value today are likely to converge in future. (For instance, in convergence trading, long position maybe taken in a cheaply trading asset with short position in a similar asset that is trading at a higher price). LTCM also increased ROE by increasing leverage. ...
... Hazard: Any bailout by regulator is always likely to create moral hazard issues as other entities might take similar risks assuming that regulator would be there to bail them out. Counterparty risk: Because of LTCM and its founders' reputation, LTCM was able to undertake transactions with 0% initial margins, even with banks that always insist on initial margins from non-banking. ...
