Risk Management Lessons from Long-Term Capital Management¶
Jorion, P. (2000). Risk Management Lessons from Long-Term Capital Management. European Financial Management, 6(3), 277-300.
Cited by¶
1 citation across 1 artifact.
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Mechanisms¶
- Financial Spread Trade
- Its defining failure is the convergence trade that is right about direction and killed by timing: the spread widens before it narrows, and a funding or liquidity squeeze forces liquidation at a loss — the mechanism behind the 1998 collapse of Long-Term Capital Management.
This sourceExplains how LTCM's leveraged convergence trades suffered when spreads widened and liquidity pressure forced loss-making liquidation before convergence.
- Its defining failure is the convergence trade that is right about direction and killed by timing: the spread widens before it narrows, and a funding or liquidity squeeze forces liquidation at a loss — the mechanism behind the 1998 collapse of Long-Term Capital Management.
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