Risk management lessons from Long‐Term Capital Management
分析长期资本管理公司1998年倒闭的风险管理教训，指出其因依赖短期历史数据和风险集中而严重低估风险，并揭示了用同一协方差矩阵衡量风险和优化头寸的内在缺陷。
The 1998 failure of Long‐Term Capital Management (LTCM) is said to have nearly blown up the world’s financial system. For such a near‐catastrophic event, the finance profession has precious little information to draw from. By piecing together publicly available information, this paper draws risk management lessons from LTCM. LTCM’s strategies are analysed in terms of the fund’s Value at Risk (VAR) and the amount of capital necessary to support its risk profile. The paper shows that LTCM had severely underestimated its risk due to its reliance on short‐term history and risk concentration. LTCM also provides a good example of risk management taken to the extreme. Using the same covariance matrix to measure risk and to optimize positions inevitably leads to biases in the measurement of risk. This approach also induces the strategy to take positions that appear to generate ‘arbitrage’ profits based on recent history but also represent bets on extreme events, like selling options. Overall, LTCM’s strategy exploited the intrinsic weaknesses of its risk management system.