raghu wrote: > The first [attitude] is exemplified > by the principals of LTCM who appear > to have sincerely believed in the > infallibility of their models and > the 25 standard deviations theory.
I don't think this matters much, but FWIW historically: According to Richard Lowenstein (When Genius Failed), things didn't happen this way at all. On the contrary, Lowenstein says that Merton, Scholes (the leading quants in LTCM), and McEntee were opposed to taking positions outside of the fund's area of expertise -- bond arbitrage. They were also critical of the fund's amount of leverage. Scholes was the most outspoken of them all, but was marginalized. These clashes happened not once, but many times. According to Lowenstein, the board's meetings became almost "scripted" with the two bands bickering over the issues. But the critics didn't have the upper hand. Hilibrand and Haghani prevailed. And Meriwether went along with them. This was before the debacle, when the fund was still in good shape. Lowenstein described Hilibrand and Haghani as compulsive gamblers. Neither of them was a quant. And John Meriwether as a clever salesman, never a quant.
