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It was an example of what happened when everyone believes the so called "smartest people in the room" without questioning. It also represents what happens when
by antishatter 9y ago
It was an example of what happened when everyone believes the so called "smartest people in the room" without questioning. It also represents what happens when the market adjusts to what you're doing but you fail to adjust and also the nature of tail risk. Was their model dumb? Tough to say, they did win a nobel prize in economics for it. I think warren buffet has some quote about how they were "risking a million to make a nickel".
- dnautics 9y agoWell given that their model was predicated on price movements being normally distributed and for around 100 years price movements have been known to be levy alpha distributed (alpha ~1.6 for the most volatile and usually ~1.8), I'd say it was dumb.