This is correct. LTCM’s big trade was a convergence trade which was set up to guarantee profit at maturity. Unfortunately for them LTCM miscalculated volatility and blew up because, basically, it could not meet a margin call.
This is correct. LTCM’s big trade was a convergence trade which was set up to guarantee profit at maturity. Unfortunately for them LTCM miscalculated volatility and blew up because, basically, it could not meet a margin call.