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Non-Tech : Derivatives: Darth Vader's Revenge
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To: ahhaha who wrote (314)10/4/1998 12:32:00 AM
From: Tundra  Read Replies (1) of 2794
 
ahhaha,

Thanks for informative facts and thoughts which you have posted. I am not sure I followed all of it; but nonetheless at least feel slightly better informed.

My question revolves more around the reported amount of notional
derivatives in the LtCm case; i.e. approximately 1 trillion (or more).
Assume for a moment that such number is accurate. Is it meaningful
in any real way? Or do a great deal more facts need to come to light
to draw any meaningful tentative exposure conclusions?

Assume further for a moment that LTCM position consisted entirely
of a short position in treasuries offset by an long position in Gnma's
or some similiar group of mortgage backed securies.{I realize that such assumption is not factual in this case; other positions were apparently taken as well} At first blush, this would seem to indicate a one half trillion notional sum on each side of the trade. Given the assumptiom, is that true? Or is virtually meaningless even if true ?

By trying to simplify an example of positioning like above, what further information do we need to at least ballpark the potential exposure of LTCM? For example, if we find that divergence rather than convergence results in a ten basis points move; thus going against the LTCM bet, do we have enough information in this hypo to translate that into actual dollar "losses."? If not, how much more do we need?

This area is far enough from that which I am familiar. Additionally, it is late at nite and I easily could have missed something that should obviously be considered. I am hesitant to posit my guess. Your input would be most appreciated.

TIA

Regards,

Tundra
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