TK:
What you just wrote is a lot of theoretical bullshit--typical of you academics---you are good at posting meaningless drivel!
You mentioned Gorton questioning "why the convergence did not occur as fact as LTCM expected ?
Pay attention and learn TK--the LTCM partners believed on the basis of their complex computer models, that the long and short portions in their portfolio were highly correlated and so the NET RISK was small.
What LTCM failed to account for was that a substantial portion of their balance sheet was exposed to a general change in the price of liquidity.
Remember after the Russian crisis--there was a massive flight to quality--investors bolted out of all risky markets and into more secure instruments---and the ultimate result was a huge liquidity crisis--and it was this flight to quality that dealt a severe blow to LTCM portfolio.
Are you following me TK ?
Remember I said earlier that what LTCM failed to account for was that a substantial portion of their balance sheet was exposed to a general change in the price of liquidity.
You see with liquidity becoming more valuable--it always does following a crisis--the short positions in LTCM's portfolio increased in price relative to the long positions---and that was essentially a massive, unhedged exposure to a single risk factor--LIQUIDITY---and so LTCM's portfolio took a humongous hit---in the end LTCM had to be rescued---14 wall street firms put up 3.5 billion in exchange for 90% of LTCM.
Once again TK--you are trying to impress by posting meaningless academic drivel and fancy talk.
Listen, what causes trouble in many instances is the complexity of the system the mathematics is intended to model--Numbers have power--but when you depend on a theoretical equation too seriously and over-reach its assumptions---you get into trouble---the LTCM partners had great confidence in their models.
You wrote, "a probability parameter needs better representation."---
That's meaningless, nonsensical, fancy academic talk.
What portfolio managers learned after the LTCM debacle is models must be stressed tested and judgment is paramount---the mathematical models are only as good as the assumptions that are fed into the models---in situations like a market crisis---TROUBLE---firms learned you can take liquidity bets but you cannot leverage them too much.
Like most academics TK you can write a million words about LTCM---but you are clearly at sea to explain why LTCM failed---keep posting your nonsensical theoretical bullshit---that's what you professors are good at doing---most of you.
Rev
Stormborn: That is itself a load of crap. The models failed. Their algorithms spat out bilge, their supercomputer crumbled and the economy went downhill.
Stormy:
The bunk, the baloney, the hogwash and the total balderdash you post on this forum is absolutely stunning!
You are totally clueless about the LTCM situation---but there you are posting away---pretending that you know what you are writing about---but I'll give you credit stormy-- you are an even bigger bullshitter than that 3rd rate/3 cents economics Phd TK/redux.
By the way storm read this sentence you wrote in your post above:
"The point is as TK suggested, they could not get to the reason for their being a Truth their mathematical models insisted existed. There reality is there was no truth to be gotten." Stormborn
In the name of Allah, the beneficient, the merciful.
In the name of the father, the son, and the holy spirit.
WHAT THE F*** WERE YOU SAYING IN THAT CONFUSED AND DISCOMBULATED SENTENCE STORMBORN ?
BOTTOM LINE:
The Rev has exposed stormborn and TK as consumate and categorical bullshitters.
Rev