Computers cleared.

Author:Ross, Paul F.
Position:Letters - Letter to the editor
 
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Joseph Fuller, in describing how computer modeling worsened our current financial crisis (Spring), notes that the lesson from Long Term Capital Management (LTCM) was not learned. A casual reading of Roger Lowenstein's history of LTCM, When Genius Failed (2000), suggests that the use of the Fisher-Scholes option-pricing model caused LTCM's failure, which the Nobel Prize-winning partners' brilliance in economics did not prevent. But a careful reading shows that LTCM's "brilliant" increase in capital assets could have been bettered by buying into a mutual fund whose investments reproduced a general market index (i.e., LTCM's "use" of computer modeling was no help)...

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