Long-Term Capital Management

About Long-Term Capital Management

Long-Term Capital Management was a hedge fund founded in 1994 with two Nobel Prize winning economists, Myron Scholes and Robert Merton, on its board. LTCM used complex mathematical models and high leverage. In 1998, the Russian financial default caused LTCM to lose 4.6 billion in weeks. The Federal Reserve organized a 3.6 billion bailout by major banks to prevent systemic collapse. LTCM demonstrated that even brilliant mathematicians could not eliminate risk. The collapse influenced risk management practices and was a warning about the dangers of excessive leverage and overreliance on mathematical models.