LCM公司发展与崩溃的

UpanddownofLTCM

MainContentsBriefreviewofLTCM’sstoryandpeoplebehindthesceneLTCM’stradingstrategiesandriskmanagementWhatwentwrong–reasonsfortheLTCM’sdownfallIntroductiontoLTCMLTCM–LongTermCapitalManagementFormat:hedgefundadvantages:noregulation,limitedliabilityandtaxbenefitsStorybegins…….Spectacularreturn1994~1997startingcapital:$1billion(Mar-94)beforecollapse:$6.7billion(Aug-97)Quickdownfallin1998MonthlynetcapitalchartPeoplebehindthestory

–anall-startradingteamHigh-profiletradingprofessionals–John.MeriwetherandhisloyalmenNobellaureates–RobertMertonandMyronScholesFormervicechairmanofFed–DavidMullinsLTCM’stradingstrategiesBasictypesConvergencetradeRelativevaluetradeDirectionaltradeClassicalexamplesOn-the-run,off-the-runbondtradesInterestrateswapstradesSellingvolatilitytradesRiskarbitragetradesYieldcurverelative-valuetradesFrenchgovernmentbondtradesEquityrelative-valuetradesOn-off-the-runbondtradingType:convergencetradePrinciple:Whatison-the-runandoff-the-runTreasurybondHowtomakemoneyfromtrades:beforeconvergence,longoff-the-runandshorton-the-runAfterconvergence,unwindpositionOn-off-the-runconvergenceInfluenceonPricespread----Blueline:pricespreadinfluencedbybuyingtransaction----Redline:pricespreadinfluencedbysellingtransactionInterestrateswapstradesType:relativevaluetradePrinciple:WhatisinterestrateswapsWhatisrepofinancingHowtomakemoneyfromcombinationofTreasurybond,repofinancingandinterestrateswapsConceptofinterestrateswapsCashflowofanIRStFixedswapratepaymentVariableratepaymentForreceivingfixedandpayingfloatingcase:RepofinancingAformofcollateralizedborrowingAnexample:aperfectrepofinancingBorrowmoneyBuyassetsUseassetsascollateralofborrowingSellassetsatappropriatetimePaybackprincipalandinterestQ:whatbenefitsdoweget?IRStradingexampleAvailableinformation:20-yearTreasuryyield=6.77%Libor-Reporate=0.20%=20bpsSwapfixedrate=6.94%Weknowswapspread(6.94-6.77=17bps)isathistoricallowWeknowdifferenceofLiborandrepowillhavelittlevariationQ:Isitpossibletostructureaprofitabletrade?IRStradingexampleAnswer:Yes!Basicideabehindtrading:findtwosimilarcashflows.Longthecheaperoneandshorttheexpensiveone.Inthisexample:PurchasingTreasuryusingrepofinancinghassimilarcashflowofaninterestrateswap.Notethatswapspreadisathistoricallow(expensivetopayingfloatingandreceivingfixed).MultiplelegsofswaptradesBuying20-yearTreasurybondsofcertainamountusingrepofinancing“Selling””20-yearinterestrateswapsofsamenotionalamount––thatis,payingfixedandreceivingfloatingCashflowsoftwolegsLeg1:purchasingTreasuryusingrepofinancingtBondinterestpayment:6.77%Reporatepayment:Libor-0.20%Leg2:interestrateswaps(payingfixedandreceivingfloating)Liborratepayment:LiborratetSwapfixedratepayment:6.94%IRStradingexampleNetinflowtothefund:XX=(Treasuryyield––reporate)––(swaprate––Libor)=(Libor––repo)––swapspread=20bps––17bps=3bps/yearStillapositivecarrytillmaturity!IRStradingexampleHopeswapspreadwiden,thensimplyunwindthepositionEnteringareversepositiontooffsetOffsettingpositionfurtherenhancestheleverage(totalassets/equitycapital),soleverageisnotasignificantindicatorofriskReallifedataonswapspreadEntrypointExitpointSellingVolatilityRecalltheBlack-Scholes:Volatilityrisk:SellingVolatility(continued)Theportfolio=selllong-termcalloptiononindex+selllong-termputoptiononindex+someshort-termindexderivativeNoimmediateexposuretothemovementinindexMakeprofitastheimpliedvolatilitydecreasesQ:WhyLTCMbelievedthecurrentimpliedvolatilityistoohigh?SellingVolatility(continued)Answer:HistoricalvolatilityandneartermimpliedvolatilityisnotthathighTruereason:supplyanddemand.Investor’sdesiretogetdownsideprotectiondrovethepriceofoptiontoohigh.Sowasimpliedvolatility.Reasonsforthedownfall––1Modelandparameterrisk:extremecaseProbabilitybelief:a10-sigmaevent?Fattailofaprobabilitydistribution(fear,greed………irrational)Reasonsforthedownfall––1FattailofapdfReasonsforthedownfall––1FamousmottobyJohnMaynardKeynes:ThemarketcanstayirrationallongerthanyoucanstaysolventSoextremesituationstresstestingisindispensable!Reasonsforthedownfall––2Liquidityrisk:ByessenceofLTCM’’strade,theyareinfactprovidingliquiditytobroadmarket––sellingliquidassetsandbuyingnon-liquidassetsWhenthewholemarket““flytoliquidity””……Reasonsforthedownfall––3PortfolioLeverage?EndofAugust1997,fund’’sleverageis:19:1.Peakvalueis31:1.Q:IsleveragetoobigforLTCM?Reasonsforthedownfall––4Fund’sfinancing?AlmostperfectinmanyoftheirtradesReturn2billionsofcapitaltoinvestorsattheendof1997.Isitawrongmove?Notsufficientlineofcredittodrawinadversesituation.Reasonsforthedownfall–