Inventing Money: The Story of Long-Term Capital Management and the Legends Behind It - Softcover

Über die Autorin bzw. den Autor

Nicholas Dunbar studied physics in the UK at Manchester and Cambridge and finally in the US at Harvard University, where he gained a Master's degree in earth and planetary sciences. During this period his interests ranged from quantum mechanics and black holes to evolution and the history of global climate change. His teachers included Stephen Hawking at Cambridge and Stephen Jay Gould at Harvard.
In 1990, Dunbar decided to leave academia. He spent the next few years working in feature films and television, in a wide range of capacities. In 1996, after launching the television production company Flicker Films, a chance encounter with some old Harvard friends set him on a new path of finance and science writing, focusing on the derivatives industry. In 1998, he joined Risk magazine as technical editor.

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LTCM was the fund that was too big to fail, the brightest star in the financial world. Built on genius, by legends of Wall Street and two Nobel laureates, it spiralled to ever greater heights, commanding unimaginable wealth. When it fell to earth in Spetember 1998 it shook the world. This is the story of the rise and fall of LTCM and the legends behind it.

"Inventing Money is a brave and ambitious book....a highly readable account of a financial drama of the highest kind."
―The Independent

"Nicholas Dunbar's fascinating book is a well-writen chronicle of these events....a book to enjoy."
―Times Higher Educational Supplement

"A substantial primer on the history of financial theory, not least because of Mr Dunbar's knack for colourful parallels that illuminate his arguments."
―New York Times

"...not the last word on the subject, but it is a good start."
―The Economist

"Dunbar's is....a highly readable introduction to the origins of alternative strategies employed throughout the industry today."
―Portfolio International

"...a fascinating account of this spectacular episode."
―CIB News

"A well researched book...very readable."
―Investors Chronicle

"...a penetrating look at this enthralling story, stripping away the shroud of mystery surrounding the drama that rocked the financial world.... Dunbar tells the full story of this most public of financial disasters, unveiling previously undisclosed information, in captivating and accessible terms."
―Euro Business

"...a fast moving and readable account that explains the development of finance over the centuries before recounting the brief but eventful life of LTCM. It gives a strong flavour of the people and the times, their resentments and motivations."
―Risk

"...an essential insight into the development of financial markets and the history of man's attempt to predict investor behaviour.... It should be required reading for anyone considering investing in financial markets."
―Allianz Global Risk Report

Aus dem Klappentext

LTCM was the fund that was too big to fail, the brightest star in the financial world. Built on genius, by legends of Wall Street and two Nobel laureates, it spiralled to ever greater heights, commanding unimaginable wealth. When it fell to earth in Spetember 1998 it shook the world. This is the story of the rise and fall of LTCM and the legends behind it.

"Inventing Money is a brave and ambitious book....a highly readable account of a financial drama of the highest kind."
—The Independent

"Nicholas Dunbar's fascinating book is a well-writen chronicle of these events....a book to enjoy."
—Times Higher Educational Supplement

"A substantial primer on the history of financial theory, not least because of Mr Dunbar's knack for colourful parallels that illuminate his arguments."
—New York Times

"...not the last word on the subject, but it is a good start."
—The Economist

"Dunbar's is....a highly readable introduction to the origins of alternative strategies employed throughout the industry today."
—Portfolio International

"...a fascinating account of this spectacular episode."
—CIB News

"A well researched book...very readable."
—Investors Chronicle

"...a penetrating look at this enthralling story, stripping away the shroud of mystery surrounding the drama that rocked the financial world.... Dunbar tells the full story of this most public of financial disasters, unveiling previously undisclosed information, in captivating and accessible terms."
—Euro Business

"...a fast moving and readable account that explains the development of finance over the centuries before recounting the brief but eventful life of LTCM. It gives a strong flavour of the people and the times, their resentments and motivations."
—Risk

"...an essential insight into the development of financial markets and the history of man's attempt to predict investor behaviour.... It should be required reading for anyone considering investing in financial markets."
—Allianz Global Risk Report

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Chapter 1: The Theory of Speculation

A man was crossing a bridge over the Charles River from Boston to the Massachusetts Institute of Technology (MIT) in Cambridge. It was October 1968 and there was plenty going on to distract Fischer Black. Richard Nixon. was on his way to winning the presidential election, and the country was bitterly divided over the Vietnam War, where almost a million US troops were in action. Earlier that year, Martin Luther King had been assassinated bitter blow to those living in Boston's black ghetto of Roxbury. All over world that year, riot shields confronted student banners.

But Black had other things on his mind. A tall, quiet man with slicked back hair and chunky spectacles, he wore a dark suit, in contrast to the hair and afghan coats of the students leaving their classes. Black didn't notice the students; he was deep in thought at he entered the MIT economics faculty. He was there at the invitation of a young Canadian academic, Myron to) Scholes, who had recently joined the faculty from Chicago.

Aged 30, Black was earning a living at Boston consulting firm Arthur D. Little, trying to advise mutual funds on their stock market investments, But Black's heart wasn't in his work. Instead, he was seeking Scholes's help in pricing an obscure type of financial contract called an option. Black didn't yet know about the brainy young student in the economics department Robert C. Merton, who was interested in the same problem.

A talkative 27-year-old Scholes showed his, visitor into his office, and brought him a cup of coffee. He couldn't possibly know that the work he and Black were about to embark on would one day result in him and Merton shaking hands with the King of Sweden and accepting a Nobel Prize. He would have been insulted by the suggestion that shortly afterwards, their activities at a hedge fund called LTCM (Long-Term Capital Management) would paralyse the global financial system. The two papers on the subject that the trio eventually published nearly five years later don't look too inspiring at first sight. Black and Scholes's opus was called 'On the pricing of options and other corporate liabilities' while Merton's paper rejoiced in the title of 'The rational theory of option pricing', Turn a few pages, and mathematical equations start dancing before one's eyes.

Yet, although the ideas of Black, Scholes and Merton didn't have much immediate impact in 1973, they eventually would change the world, along with the lives of their authors. Options would become vitally important to finance, but there was more to it than that. Black, Scholes and Merton had invented what came to be known as financial engineering.

Just as the engineering of digital bits would eventually lead to the Internet, the mathematically driven engineering of stocks, bonds and other securities would create the modem trillion-dollar financial system. Unlike the Internet, or the space shuttle, or any other engineering achievement, this one is largely invisible. Only when a disaster strikes, as would happen to Merton and Scholes and their colleagues at LTCM in 1998, do people notice.

Playing in the movie theatres in Autumn 1968 was the film by Stanley Kubrick, 2001: A Space Odyssey. The film opens with a stunning sequence where a prehistoric hominid hurls a bone spinning into the air, which becomes transformed into an orbiting space station. The story of finance is no different. When combined with mathematics and technology, the ancient urge to make money it amplified into a force of awesome power, Addressing Congress after the LTCM. debacle what did Federal. Reserve Board chairman Alan Greenspan mean when he spoke of 'mathematical models of human behaviour'? We -can be sure of one thing. Markets arrived long before mathematics did. In fact, they go back to the distant origins of human behaviour, millions of years ago on the sweltering African savannah. Before we discover what Black, Scholes and Merton actually did, it's worth taking a brief excursion back in time to find out more.