Editing Long-Term Capital Management (section)

== Analysis ==
Historian [[Niall Ferguson]] proposed that LTCM's collapse stemmed in part from their use of only five years of financial data to prepare their mathematical models, thus drastically under-estimating the risks of a profound economic crisis:

{{blockquote|The firm's [[value at risk]] (VaR) models had implied that the loss Long Term suffered in August was so unlikely that it ought never to have happened in the entire life of the universe. But that was because the models were working with just five years' worth of data. If the models had gone back even eleven years, they would have captured the [[Black Monday (1987)|1987 stock market crash]]. If they had gone back eighty years they would have captured the [[Repudiation of debt at the Russian Revolution|last great Russian default]], after the 1917 Revolution. Meriwether himself, born in 1947, ruefully observed: "If I had lived through the [[Great Depression|Depression]], I would have been in a better position to understand events." To put it bluntly, the Nobel prize winners had known plenty of mathematics, but not enough history.|Niall Ferguson, ''[[The Ascent of Money]]''.<ref name="Ferguson">{{cite book |last1=Ferguson |first1=Niall |title=[[The Ascent of Money|The ascent of money: a financial history of the world]] |date=2008 |publisher=Allen Lane |location=London |isbn=978-1-84614-106-5 |page=329}}</ref>}}

These ideas were expanded in a 2016 CFA article written by Ron Rimkusk, which pointed out that the VaR model, one of the major quantitative analysis tool by LTCM, had several flaws in it. A VaR model is calculated based on historical data, but the data sample used by LTCM excluded previous economic crises such as those of 1987 and 1994. VaR also could not interpret extreme events such as a financial crisis in terms of timing.<ref>{{Cite web|last=Rimkus|first=Ron |date=2016-04-18|title=Long-Term Capital Management|url=https://www.econcrises.org/2016/04/18/long-term-capital-management/|access-date=2020-10-11|website=Financial Scandals, Scoundrels & Crises|language=en-US|archive-date=2021-04-23|archive-url=https://web.archive.org/web/20210423070259/https://www.econcrises.org/2016/04/18/long-term-capital-management/|url-status=live|publisher=[[CFA Institute]]}}</ref>