This document discusses long term investment management and focuses on Long Term Capital Management (LTCM). It discusses how LTCM used leverage and derivatives to build large positions based on models that did not account for changes in volatility. This led to major losses when volatility increased. The document also discusses the challenges of managing money and risk in hedge funds and how funds must balance investments, leverage, liquidity, and margin requirements.

1. LONG TERM INVESTMENT
MANAGEMENT
Mustapha Mark Akintona
110 February 2018 LONG TREM INVESTMENT MANAGEMENT

2. INTRODUCTION
• MOMENTUM
– The capital fund managements become momentum
and fundamental value that merge with the new
technology and innovation, which inform the market
about the random walk but the biased geometric
random walk with a non-stationary drift.
– But the invisible hands normalize to reduce the
general market anxiety from the raised borrowing
costs, the compression of risk premia subdued
volatility and increased risk-taking behavior for the
asset price correction.
210 February 2018 LONG TREM INVESTMENT MANAGEMENT

3. LONG-TERM CAPITAL MANAGEMENT
• HEDGE ROW OF CAPITAL MANAGEMENT
– But how does margin call and liquidity affected the
instrumentation, risk management and funds of Long-term
capital management and the Bear Stearns since the fund were
settled at a profit and money at risk to preserve the market
efficiency?
– Bear Stearns went through the bankruptcy process because
management of money is very difficult which take a lot of work
and gigantic quantity of research, data and information which
require a lot of skills from traders, brokers, bankers, money
managers, hedge fund managers, and regulators in order to
neutralize the gap between investment vehicles of market
efficient and market crash through the evaluation of investment
styles and strategies to allocate assets, leverage finances and
streamline incomes.
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4. LONG-TERM CAPITAL MANAGEMENT
• ROLL-ROYCE OF HEDGE FUNDS
– While transparency is important for investors, the trading
model of Long Term Capital Management which were built
on the fixed income markets are related to the cash
managements and margin calls of funds.
– Communicating with investors is very important in
revealing the position of portfolio to optimize investment
decisions, share insight and information about the markets
and economies of scale, hurdle rate and marketability of
the fund.
– Efficiently hedge the cost and saving of portfolio, especially
during the time of excessive volatility and economic
uncertainty to manage the asset of fund’s management,
asset allocations and performances.
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5. LONG-TERM CAPITAL MANAGEMENT
• NEW BRETTON WOOD
– Provision of liquidity to world financial markets influence
the behavior of cost of capital for the corporations since
investors avoid long-term risks in favor of cash that wildly
affect the world stock and bond markets and the volatility
of currency market.
– But risk managements like Long Term Capital
Management who used derivatives to build up leveraged
position that past volatility is a reliable guide to future
volatility generated by the efficient market hypothesis
influence through shareholder value, corporate stock-
option schemes and companies’ cost of capital but the
chaotic feedback loops from the intrinsic values affecting
the moment of speculation and derivative purposes.
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6. LONG-TERM CAPITAL MANAGEMENT
• MOMENTUM AND FUNDAMENTAL VALUE
– Big business investment decisions are mostly
determined by their share prices and their
forecast for consumer demand.
– Small businesses are constrained by bank lending
terms, households are about access to mortgage,
credit, vehicle financing and student loans,
treasury yield are more closely connected to the
mortgage rate and stock prices that affects actual
economic decision.
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7. LONG-TERM CAPITAL MANAGEMENT
• MOMENTUM AND FUNDAMENTAL VALUE
– But explicit yields target hinder the need to spend
trillion of dollars on bond buying.
– To optimize the reasonable price for the chance in
investing in assets that promote returns, risk of
rising interest rate, future of technology and
innovation and inflation.
– Value is utility of taste and fashion which relating
to the humantic personality that depends on the
dynamisms of feeling, soul and attention.
710 February 2018 LONG TREM INVESTMENT MANAGEMENT

8. LONG-TERM CAPITAL MANAGEMENT
• LIFESTYLE MODEL AND ENERGY MARKET
– Feeling pretty smart and sophisticated about energy
market and energy trading, the risk management of
the investment strategy are about diversifying holding
of the amount invested.
– And monitoring investment risks by using asset
allocation to alternative risky investments, including
investments in swap and hedge funds, pension funds
and endowments, illiquid holdings such as real estate
venture and private equity funds to optimize long-
term funds overall performance.
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9. LONG-TERM CAPITAL MANAGEMENT
• LIFESTYLE MODEL AND ENERGY MARKET
– The amount of speculative investment money in
energy commodities play an important role in
keeping price volatile but the financial
instruments, hedging energy commodities for
industrial use take out volatility and management
costs that related to natural energy price, and
limitation of speculative positions of swaps
traders.
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10. LONG-TERM CAPITAL MANAGEMENT
• PHILOSOPHICAL MOMENTUM
– Hedge funds, banks, and other investment firms
should know that many physical energy contracts
are tied to the settlement price of future contract
and jurisdiction of financing energy trading and
trading activities that creates prices in line with
normal supply and demand without future market
manipulation and excessive speculation.
1010 February 2018 LONG TREM INVESTMENT MANAGEMENT

11. LONG-TERM CAPITAL MANAGEMENT
• PHILOSOPHICAL MOMENTUM
– Development of trading strategies and energy risk
management system should design to minimize the
risk related to leverage, liquidity, credit and operation
and portfolio managements should have total
discretion to build energy trading for potential
investors and optimization of fund's profits through
important research analyzing that impact market
efficient hypotheses such as how the speculation
affects the commodity prices, the issue of curbing
energy trading and internal machination and planning
of a long-term capital investments.
1110 February 2018 LONG TREM INVESTMENT MANAGEMENT

12. LONG-TERM CAPITAL MANAGEMENT
• PROXY PORTFOLIO OF ENERGY BOOK AND DEALS
– Preservation of investor-capital invest in the firm's cash and
various investments seek assurance to streamline liquidity line
of retain extensive holding and seem immunity to eliminate the
risks of purchasing energy book in the energy market deal and
continue operation of a firm that received a distress margin call
future contract.
– The distress create from the ignorance of risk in the energy
derivative portfolio margin calls can be managed by investors
and creators who trying to prevent the risk of defaulting on the
margin calls by pursuing different options to keep the form
afloat and investing in alternative investment that support the
firm's internal hedge fund operation to optimize the market
behavior of the company's risk model and portfolio shrank.
1210 February 2018 LONG TREM INVESTMENT MANAGEMENT

13. LONG-TERM CAPITAL MANAGEMENT
• HOLDING OF ENERGY BOOK AND DEALS
– The complication of depressed value of investment
holding seem like return investor money, cover
current margin calls, off-load energy holding, unwind
the commodity spread trade and secure the energy
portfolio.
– But the risk management of risky position should
position the marketing implementations as the
fiduciary responsibility and efficient market of energy
in the industry fundamental to determine the fair
value of holding.
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14. LONG-TERM CAPITAL MANAGEMENT
• INVESTMENT STRATEGY AND ENERGY HOLDING
– The management of margin requirements to timely
oversee the energy holding and investments, which is
affecting by the volatility of prices, risks
and margin requirements.
– Asset management of bonds, stocks, and
other holding to liquidity and managing the margin
requirements.
– And management of cash to meet margin calls, and
other immediate financial instruments that could
trigger default and seizures, and devastating attack on
the prices of energy holding.
1410 February 2018 LONG TREM INVESTMENT MANAGEMENT

15. LONG-TERM CAPITAL MANAGEMENT
• ENERGY PORTFOLIO AND HEDGE FUNDS
– The hedge funds of energy portfolio is about micromanage the limit on
total futures contracts, options and spreads, and about raising the
capital to keep the firm afloat and optimizing of value-at-risk of
portfolio reflecting liquid portfolio, enough money from cash, stock
and bond, to meet increment of margin calls trigger by the market
volatility and massive losses.
– Since the potential investment holdings are volatility, risks, and
potential profits, the complex energy trading aid a sense
of performance and market volatility with sufficient money to meet
margin calls, the optimized cash management and the risk assessment
of funds.
– But humbly to recalibrate and asses risk in energy market and
investment holding to certainly understanding the price of spread
relationships involve price improvement and fundamental value drives
of market sentiment in trading and investing position
of energy holding.
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16. LONG-TERM CAPITAL MANAGEMENT
• FUNDAMENTAL VALUE DRIVERS
– The fundamental value drivers including the volatility of energy
market, commodity prices, capital invested in energy, volatility of price
and returns, the face value of trading financial instruments, long and short
position and the firm's return, capital in other asset managements to
raise cash for energy holding and portfolio and the price of spreads and
margin call to stay with investments, got out holding and make profit and loss.
– But optimizing the size of holding and reducing risk depends on
the complicated structure of options that replicated optimizing position
spreads, call options, option position, and the future contracts at the supply
fundamentals.
– Capital of energy holding optimize if price move fundamentally with the value
drivers in the spread and options and protecting the holding with the risk
assessments, exploration for new capital investment and business, profit for
capital investments and commission for the portfolio management and
brokerage for complicating holding position and swap spread in energy
exposure for investment keep on growing.
1610 February 2018 LONG TREM INVESTMENT MANAGEMENT

17. LONG-TERM CAPITAL MANAGEMENT
• WINTER HEDGING AND ENERGY CAPITAL ALLOCATION
– Diversification of energy and commodities portfolio with other
asset allocation including metal, iron, natural gas and crude oil
to optimize the holding returns and its volatility.
– But how many small towns and rural areas demand building the
pipelines since the gas system provide a business and important
service and profit are adding to municipality and hedging of
extreme price and cost of natural gas?
– Trading the future contract is a traditionally way to hedge for
the winter gas cost and the price of physical gas on the spot
market.
– The vision of higher physical gas price in the winter can be
finance through purchasing the financial contracts to protect the
risk of price spikes on the customers.
1710 February 2018 LONG TREM INVESTMENT MANAGEMENT

18. LONG-TERM CAPITAL MANAGEMENT
• COST MANAGEMENT AND SPOT MARKET
– No purchasing of physical gas and store for winter season because the
dynamic system of the spot market, increase in price and volatility.
– Hedging price systematically over period of time, hold contracts in
spring and summer in advance to protect the difference between the
contract prices and physical gas price in the spot markets because the
this kind of financial contract prices may continue increase.
– Since the market of natural gas play a critical role in the dynamisms of
economy, individual and corporation, the stability of energy market is
very important for electricity company, gas heating for a household,
restaurants, hotels, hospitals and retail stores. National gas continue
used as ingredient of by-product, product in sports, medicines,
automobile, computer and pharmaceuticals.
1810 February 2018 LONG TREM INVESTMENT MANAGEMENT

19. LONG-TERM CAPITAL MANAGEMENT
• FINANCIAL DERIVATIVES AND SPECULATIONS
– Weather forecasting for warm winter, cool summer, and
natural gas reserves can not efficiently reflect how the
price increasing dynamically affect the equilibrium of
demand and supply because the weather need to reflect
on the reasonable sense of the seasons which manageably
affect the fluctuation of gas cost and gas bills.
– The grain trade, natural gas markets, cotton, cocoa, and
merchant energy company activities in the commodity
future exchange including trading energy future and
derivative, future derivatives for wheat, corn and grain,
and fuel and natural gas. Spot market to safeguard the
boom-and-bust industry and speculation who want to
efficiently.
1910 February 2018 LONG TREM INVESTMENT MANAGEMENT

20. LONG-TERM CAPITAL MANAGEMENT
• HALO’S ENERGY HOLDING AND INVESTOR RELATION
– The mild winter from meteorologist meants the weather is a company
to allocating natural gas in the future in maintenance of energy
position efficiently support the fundamental value, opportunities in
the natural gas market and energy investment.
– But the investor relations planning to diversify the natural gas holding,
utilities, oil and gas production, with winter future contracts as
hedging strategies because of the seasonal extreme volatility from the
developed energy supplies and illiquid energy investment which
affecting margin requirements. And accountability of margin purpose
as utilities trading position use in hedging physical gas costs.
– Investor relation also including oversee of investments and portfolio,
the daily of volatility on the firm profitability of the fund’s position and
the state of market from the firm’s prime broker about the bonds and
stocks for the management of margin requirements, cash
management to meet the margin call and financial situation of fund of
funds and asset managements.
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21. LONG-TERM CAPITAL MANAGEMENT
• HEAD OF RISK MANAGEMENT AND DEGREE OF SPECULATION
– A lot of the city-owned utilities system are owned by the municipality,
which use financial contract advanced to systematically control the
fluctuation of prices.
– The transformation of natural gas market and energy trading including
futures, derivatives and options allow controllable degree of
speculation that functionally affect the efficient market and
marketplace such as the real dynamisms of supply and demand of
farm products and their users to stabilize the excessive pricing from
the future contracts and trading which including the nonagricultural
products and financial instruments.
– Investor relation also including oversee of investments and portfolio,
the daily of volatility on the firm profitability of the fund’s position and
the state of market from the firm’s prime broker about the bonds and
stocks for the management of margin requirements, cash
management to meet the margin call and financial situation of fund of
funds and asset managements.
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22. LONG-TERM CAPITAL MANAGEMENT
• THE FREE MARKET OF HEDGE FUNDS , MUTUAL FUNDS, MONEY
MANAGEMENT AND SPECULATION
– Bankers and long-term capital management and
investments hold the financial instruments, bonds, to
liquidity the cash flows and approachably leverage
and hedge for the protection of a lot risk common in
the financial industry.
– Hedge funds and mutual funds capital management
optimizing portfolio with alternative investment
strategies including venture capital, managed future
and commodities.
2210 February 2018 LONG TREM INVESTMENT MANAGEMENT

23. LONG-TERM CAPITAL MANAGEMENT
• ALPHA ENGINE AND HEDGE FUND MANAGEMENTS
– Money invested as “Sticky money” and “Fast money”
are part of the optimized money making opportunities
to control investment risks, high leveraged
investments and the terms of risk and returns, which
determined by the investment diversification and the
allocation of funds.
– The management team including consultant, risk
managers, portfolio managers, investment managers,
and their executive committees board together to
provide details, criticism, discussion, and denunciation
about complex alternative investments, reduction of
portfolio risk and investment returns.
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24. LONG-TERM CAPITAL MANAGEMENT
• INTERNATIONAL EXCHANGE AND MARGIN REQUIREMENT
– The structure of longevity in leveraged derivative hedge funds
require the hedge fund managers to manage cash and
speculation without causing additional margin requirements
from clearing brokers in the International Exchange and New
York Mercantile Exchange.
– For long-term investment portfolio and management dealing
with the financial responsibility of the clearing brokers, the cash
managements as the liquidity fund and investment strategies
aggressively allocate asset in the portfolio by selling stock, using
leverage and investing in higher-risk investments to have higher
liquidity funds and assets returns, which yield the optimized
profitability of hedge funds and, account in trading energy and
other commodity in the International Exchange.
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25. LONG-TERM CAITAL MANAGEMENT
• NEW YORK STOCK EXCHANGE AND SUPERSTAIRS HEDGE FUND
MANAGEMENT
– Most of the hedge fund investment money are in the equity
trading volume, credit derivatives, emerging markets, bonds,
private pension funds, fund of funds in the mutual funds
endowment and foundation investments to aggressively
manage the risk of asset allocation like mutual funds, which are
technically support by the brokers in New York stock Exchange
who is also offer research and accounting services.
– The financial model of hedge fund industry involves tough
competitive environments and aggressive risk management of
trading strategy, investment planning, and reward-risk through
retention of trading pool, optimization of the relationship
between the value-at-risk and trading revenues, and the
financial managements of und performances.
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26. LONG-TERM CAPITAL MANAGEMENT
• COMMODITY FUTURES TRADING COMMISSION AND HEDGE FUNDS OPTION-
PRICING MODEL
– The commodity future trading commission which determine and
regulate commodity future contracts and options, the size and
intensity of trading position. The commission also modernized
the exchanges such as financial instrument of energy and metal
trading, electronic commodity trading and financial derivative,
such as the credit default swaps.
– The option-pricing model of hedge fund are based on implied
volatility which is the volatility of securities and other financial
instrument underlying on option that less volatile the historical
volatility even though both implied volatility and historical
volatility of asset price and hedge fund portfolio follow a mean-
reverting process and the expected volatility as a proxy are offer
as the Chicago Board Options Exchange Volatility index.
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27. LONG-TERM CAPITAL MANAGEMENT
• OPTIONS PRICING MODEL AND OPTION PRICING THEORY
– Most of technical analysis and tasks of investment
managements subjected the selectivity of the
portfolio allocation and market-timing
consideration by an option contract and put
option use to protect the static portfolio. The
option-pricing model including
• Black-Scholes-Merton option valuation model
• Black-Scholes option pricing model
• New-Raphson valuation model
2710 February 2018 LONG TREM INVESTMENT MANAGEMENT

28. LONG-TERM CAPITAL MANAGEMENT
• OPTION VALUATION MODEL
– The shares, bonds, stock indices, currencies, future
contracts and financial products and financial
instruments are trading as options.
– While option valuation supports the creation of new
financial instruments and valuation of company, Black-
Scholes model use to compute the implicit volatility
related to the option pricing and the functionality of
Black-Scholes price pricing is strictly monotonically
increasing in the volatility.
– Newton-Raphson method is a root-finding technique
with the efficient use of algorithm to obtain for the
implied volatility and converge quadratically.
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29. LONG-TERM CAPITAL MANAGEMENT
• HEDGEING AND INVESTMENT MANAGEMENT
– The complex algorithms and sophisticated computers give the
fund of funds of the hedge fund managements to increase
leverage and decrease hedging within the investment time
horizons as the quants looking for the profitable arbitrage
transaction with use of the Black-Scholes formula to explore the
risk-return of the stock-options, stocks, bonds and derivatives in
the management of currency exchange rate and gold volatility
and cryptocurrency banking and trading.
– The concepts of Black-Scholes applied to bonds and insurance
investments who also use stochastic calculus to modeling
random processes and, probability theory to model complex
trading operations, pricing of future and financial contracts.
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30. LONG-TERM CAPITAL MANAGEMENT
• MONEY-CAPITAL MANAGEMENT
– Money management of hedge funds include the dynamisms of asset
allocation and trading products includes equities, spot contract,
foreign exchange futures, commodities, interest rate, indices, financial
assets and securities which are money market instruments for
portfolio diversification of asset classes and investment objective of
hedge fund.
– Arbitrage transaction, hedging and trading of fixed-income securities,
equities, derivatives and warrants and debt instruments are advantage
economically to manage capital investment opportunities and
effectively preserves capital and security investments, money market
account funds and long-term capital gains.
3010 February 2018 LONG TREM INVESTMENT MANAGEMENT