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-
- Type:
- Document
- Date Created:
- 2005 July 17-2005 July 21
- Collection:
- System Dynamic Society Records
- Collecting Area:
- University Archives
- Collection ID:
- ua435
- Parent Record(s):
- 23d738ba88f8333bc39725f9cb5bd0b8, 3c582e6f5cf305ef0030c7471b499022, and cc5bb0ac12a5b68b26b1583548898dae
- Description:
- Even if arbitrage opportunities are found in a statistical sense, they might not be exploitable due to unexpected widening of spreads. This paper models such a case in the framework of a hedge fund. Specifically, Long Term Capital Management is presented as a case study. In particular, we calculate the likelihood of hedge fund failure and survival given different statistical arbitrage opportunities and hedge fund risk management decisions. Dynamic relationships between a hedge fund, dealer, and market (investor) are modeled.