However, with the Nobel Prize winners Myron Scholes and Robert Merton on board things could not go wrong! Nevertheless, they did. The underlying assumptions proved not to be valid in the face of turbulent market conditions, and in 1998 LTCM folded after losing 4.6 billion dollars in less than four months.
Danish pension companies are scarcely likely to make equally risky investments, but the case illustrates that what does not seem very risky beforehand may subsequently prove to be so. However, stress tests such as the traffic lights do have a downside.