Case Studies

Products explain what an instrument is; concepts explain how it works. These eight pages explain what happened when it went wrong — mechanically, without moralising, because the mechanisms repeat. Each case links back into the products and concepts it used. Education only, as everywhere here — see the disclaimer.

The library

• LTCM, 1998 — convergence trades at thirty times leverage, and the discovery that dozens of "independent" positions were one bet on liquidity.
• Subprime & the CDO Machine, 2008 — how a single national bet on house prices was tranched, relabelled AAA and multiplied synthetically.
• The UK LDI Crisis, 2022 — pension funds hedged correctly and still nearly failed, because variation margin is due the same day.
• Archegos, 2021 — one family office, five prime brokers, and leverage that was invisible because it was fragmented.
• Volmageddon, 2018 — short-volatility products that had to buy volatility precisely as it spiked.
• Negative Oil, April 2020 — a physical delivery constraint priced through zero in one afternoon.
• The Swiss Franc Floor, 2015 — three years of suppressed volatility resolved in thirty per cent and a few minutes.
• FTX, 2022 — not a market accident: custody that wasn't custody, and the run that revealed it.

What they have in common

• Leverage sets the clock. In LTCM, LDI and Archegos, the trades were defensible; the funding schedule was not.
• Correlation is a peacetime measurement. Every case where "diversified" positions failed together had one hidden common factor — liquidity, house prices, or a margin call.
• Mechanics beat opinions at the deadline. Expiry dates, rebalancing rules and margin schedules decided the outcome in 2018, 2020 and 2022 — all published in advance.
• Suppressed volatility is stored volatility. The calm before 2015 and 2018 was the position, not the environment.
• Nobody in these stories was doing anything unusual — which is exactly why the mechanisms are worth knowing.