82,891
edits
Long-Term Capital Management: Difference between revisions
no edit summary
Amwelladmin (talk | contribs) No edit summary |
Amwelladmin (talk | contribs) No edit summary |
||
| Line 9: | Line 9: | ||
But at least we now know that the [[Black-Scholes|Black Scholes]] model is only reliable when you don’t really need it, in times of relative market calm, so everyone has learned only to use it to manage positions that do not have ''any'' tail risk, not even once in a gazilion years, anymore.<ref>You believe this, don’t you?</ref> | But at least we now know that the [[Black-Scholes|Black Scholes]] model is only reliable when you don’t really need it, in times of relative market calm, so everyone has learned only to use it to manage positions that do not have ''any'' tail risk, not even once in a gazilion years, anymore.<ref>You believe this, don’t you?</ref> | ||
Then those “[[ten sigma event|ten-sigma” events]] — like, ooooh, say the correlation of a Russian government default with a spike in the price of all other G20 Treasury securities, just to pick something at random — that should, in the world of [[normal distribution]]s, happen only once in every 1 x 10< | Then those “[[ten sigma event|ten-sigma” events]] — like, ooooh, say the correlation of a Russian government default with a spike in the price of all other G20 Treasury securities, just to pick something at random — that should, in the world of [[normal distribution]]s, happen only once in every 1 x 10<sup>24</sup> times — say, every hundred million years or so — but, since investment decisions are ''not'', even remotely independent events, happened once — and only needed to happen once, to blow [[Long Term Capital Management]] and much of the market to smithereens — just four years after they started trading. | ||
{{sa}} | {{sa}} | ||