kaal:claim:3405660-007

Conventional risk models understated LTCM's losses because the models were estimated during more stable periods and therefore did not describe behavior under stress.

markets greatly exceeded what conventional risk models suggested were probable, but these were estimated during more stable periods.

Kaal, Indirect Regulation of Hedge Funds (2019), II. The Need for Hedge Fund Regulation, p. 7
https://ssrn.com/abstract=3405660 · source PDF

Kaal, Indirect Regulation of Hedge Funds (2019). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3405660

• models calibrated on data from stable market periods
• subsequent stress conditions

failuresupport: evidencedfailure: risk model calibration failurefamily: measurement-and-metric-failurerisk-and-incentives

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