Collapse of LTCM
The failure of a large US hedge fund in 1998, after the Russian default sent investors fleeing into safe securities.
How to read the number
The fund earned on closely related prices converging, so it worked with enormous leverage: a tiny discrepancy pays only in size. When discrepancies widened at once, the positions could not be closed without moving prices against themselves.
When the metric lies
The model was calibrated on how prices behave in calm years and made no room for previously independent markets moving together in a crisis.
Also known as: long term capital management