What are convergence and relative value strategies? Briefly summarize the construction of the trade in the swap-spread example. How does one profit from the trade? What is LTCM's assessment of the trade? Why was LTCM sometimes on the opposite side of the swap-spread trade? What is the so-called "no arbitrage zone" and how is it used in construction of a swap-spread trade? LTCM Q2: Which strategies of LTCM are based on fixed-income assets and which strategies are not? Which of them would you put, respectively, into the three categories: (i) convergence strategies, (ii) relative value strategies, and (iii) directional strategies? Describe each of the strategies of LTCM. Point out whether there is any of them that you particularly like/dislike. How were derivatives being used in the strategies? LTCM Q3: What are implications of LTCM's (near) 100%-financing and long-short structure for risk management? What is the important belief of LTCM in assessment of risk? Briefly describe LTCM's approach to measuring risk. Did the fund have significant exposure to stock, bond, and currency risks? What is "two-way mark to market"? Why is it important for liquidity management? LTCM Q4: What are sources of LTCM's working capital and how was the working capital used? Why was fund size an issue to LTCM by September 1997? In 1998 (up to August 23), what happened to LTCM and what did it do in response? Was LTCM affected by Russian debt default? Did it have a big exposure to Russia in 1998? What were the issues and key choices that LTCM considered in August 1998?