Markets and Black Swans

July 20, 2016

I began studying complexity theory as a consequence of my involvement with Long-Term Capital Management, LTCM, the hedge fund that collapsed in 1998 after derivatives trading strategies went catastrophically wrong.

After the collapse and subsequent rescue, I chatted with one of the LTCM partners who ran the firm about what went wrong. I was familiar with markets and trading strategies, but I was not expert in the highly technical applied mathematics that the management committee used to devise its strategies.

The partner I was chatting with was a true quant with advanced degrees in mathematics.

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