The Crisis of Crowding

1. Auflage 2012
ISBN: 978-1-118-25002-0
Verlag: Wiley John + Sons

Buch, Englisch, 512 Seiten, Format (B × H): 157 mm x 235 mm, Gewicht: 867 g

A rare analytical look at the financial crisis using simple analysis

The economic crisis that began in 2008 revealed the numerous problems in our financial system, from the way mortgage loans were produced to the way Wall Street banks leveraged themselves. Curiously enough, however, most of the reasons for the banking collapse are very similar to the reasons that Long-Term Capital Management (LTCM), the largest hedge fund to date, collapsed in 1998. The Crisis of Crowding looks at LTCM in greater detail, with new information, for a more accurate perspective, examining how the subsequent hedge funds started by Meriwether and former partners were destroyed again by the lapse of judgement in allowing Lehman Brothers to fail.

Covering the lessons that were ignored during LTCM's collapse but eventually connected to the financial crisis of 2008, the book presents a series of lessons for hedge funds and financial markets, including touching upon the circle of greed from homeowners to real estate agents to politicians to Wall Street.
- Guides the reader through the real story of Long-Term Capital Management with accurate descriptions, previously unpublished data, and interviews
- Describes the lessons that hedge funds, as well as the market, should have learned from LTCM's collapse
- Explores how the financial crisis and LTCM are a global phenomena rooted in failures to account for risk in crowded spaces with leverage
- Explains why quantitative finance is essential for every financial institution from risk management to valuation modeling to algorithmic trading
- Is filled with simple quantitative analysis about the financial crisis, from the Quant Crisis of 2007 to the failure of Lehman Brothers to the Flash Crash of 2010

A unique blend of storytelling and sound quantitative analysis, The Crisis of Crowding is one of the first books to offer an analytical look at the financial crisis rather than just an account of what happened. Also included are a layman's guide to the Dodd-Frank rules and what it means for the future, as well as an evaluation of the Fed's reaction to the crisis, QE1, QE2, and QE3.

Autoren/Hrsg.

Chincarini, Ludwig B.

Fachgebiete

• Wirtschaftswissenschaften Volkswirtschaftslehre Finanzkrisen, Wirtschaftskrisen
• Wirtschaftswissenschaften Finanzsektor & Finanzdienstleistungen Finanzkrisen

Inhaltsverzeichnis

Foreword xv
Preface xix
Cast of Characters xxiii

CHAPTER 1 Introduction 1

PART I: THE 1998 LTCM CRISIS 5

CHAPTER 2 Meriwether's Magic Money Tree 7
CHAPTER 3 Risk Management 21
CHAPTER 4 The Trades 37
CHAPTER 5 The Collapse 71
CHAPTER 6 The Fate of LTCM Investors 95
CHAPTER 7 General Lessons from the Collapse 101

PART II: THE FINANCIAL CRISIS OF 2008 121

CHAPTER 8 The Quant Crisis 123
CHAPTER 9 The Bear Stearns Collapse 141
CHAPTER 10 Money for Nothing and Fannie and Freddie for Free 155
CHAPTER 11 The Lehman Bankruptcy 191
CHAPTER 12 The Absurdity of Imbalance 233
CHAPTER 13 Asleep in Basel 245
CHAPTER 14 The LTCM Spinoffs 253
CHAPTER 15 The End of LTCM's Legacy 265
CHAPTER 16 New and Old Lessons from the Financial Crisis 289

PART III: THE AFTERMATH 309

CHAPTER 17 The Flash Crash 311
CHAPTER 18 Getting Greeked 323
CHAPTER 19 The Fairy-Tale Decade 339

APPENDIXES 353
APPENDIX A The Mathematics of LTCM's Risk-Management Framework 355
APPENDIX B The Mechanics of the Swap Spread Trade 361
APPENDIX C Derivation of Approximate Swap Spread Returns 365
APPENDIX D Methodology to Compute Zero-Coupon Daily Returns 369
APPENDIX E Methodology to Compute Swap Spread Returns from Zero-Coupon Returns 373
APPENDIX F The Mechanics of the On-the-Run and Off-the-Run Trade 375
APPENDIX G The Correlations between LTCM Strategies Before and During the Crisis 377
APPENDIX H The Basics of Creative Mortgage Accounting 379
APPENDIX I The Business of an Investment Bank 381
APPENDIX J The Calculation of the BIS Capital Adequacy Ratio 393

Notes 397
Glossary 443
Bibliography 451
About the Author 465
Index 467

Über Autor(innen)

Chincarini, Ludwig B.
Ludwig B. Chincarini, CFA, PhD, is an Associate Professor of Finance in the School of Management at the University of San Francisco and a member of the academic council of IndexIQ, with over fifteen years of experience in the financial industry specializing in portfolio management, quantitative equity management, and derivatives. He was Director of Research at Rydex Global Advisors, where he co-developed the S&P 500 equal-weight index and helped launch the Rydex ETF program. He helped build an internet brokerage firm, FOLIOfn, designing its innovative basket trading and portfolio management platform. He also worked at the Bank for International Settlements (BIS) and Schroders. He is the coauthor of Quantitative Equity Portfolio Management. He received a PhD from the Massachusetts Institute of Technology and a BA from the University of California at Berkeley.

LUDWIG B. CHINCARINI, CFA, PHD, is a Professor of Finance in the School of Management at the University of San Francisco and Director of Quantitative Strategies for United States Commodity Funds, with over fifteen years of experience in the financial industry specializing in portfolio management, quantitative equity management, and derivatives. Prior to this, he was creative advisor to Index IQ. He was also Director of Research at Rydex Global Advisors, where he co-developed the S&P 500 equal-weight index and helped launch the Rydex ETF program. He helped build an internet brokerage firm, FOLIOfn, designing its innovative basket trading and portfolio management platform. He also worked at the Bank for International Settlements (BIS) and Schroders. He is the coauthor of Quantitative Equity Portfolio Management. He received a PhD from the Massachusetts Institute of Technology and a BA from the University of California at Berkeley.