Analysis The High Leverage Ratio Of Hedge Fund

With the expansion of the scale and the scope of investment, hedge funds have attractedwide attention from all over the world. Currently, with the development of sunshine privateequity fund in recent years, a variety of quantitative model gradually was used and themechanism of short was improved, hedge funds have also gradually attracted the attention ofpeople. With the opening up of China’s financial system step by step, foreign hedge fundsentered the Chinese market in various forms.So we need to Strengthen the understanding ofhedge funds, especially the high leverage risk.For this thesis, chosen the Near-collapse of long-term capital management company as acase study, used document research, qualitative and quantitative analysis methods to find outthe the main reason for the huge losses, and how to prevent the risk. The Near-collapse oflong-term capital management company in1998caused the United States and global financialturmoil. In china,the research of hedge funds, especially the risk of hedge funds graduallyincreased after the event. Therefore, the event was a landmark event in the history of thedevelopment of hedge funds, the event had great significance to the development of China’shedge funds.The paper outlined the knowledge of hedge fund and its present situation and the courseof development in China, then introduced the background and the detail of the occurrence ofthe event. After that, the paper specifically analysed the cause of the event, reached theconclusion that defects of model was internal cause, the absence of regulation was externalreason, and high leverage is the main cause of its losses. Through the quantitative analysis oflong-term capital management, reached that,if the leverage ratio down to15.5:1, long-termcapital management company would successfully through the most difficult period. Thenthrough Lateral and longitudinal compared the leverage ratio of long-term capitalmanagement, and analyzed that why long-term capital management used so high leverage.Finally, from hedge funds, financial institutions, regulatory three sides discussed how toprevent hedge funds to use high leverage. At last,the paper analyzed how to effectivelyprevent high leverage in china,And reached that hedge funds need to strengthen theconstruction of its organization structure, regulators need to strengthen regulation.