Hedge Fund Crisis

The fictitious hedge fund Short-Term Capital, run by Bloomberg satirist Mark Gilbert does a nice job of parodying the recent wave of hedge fund letters:

As our alpha generation collapses, our beta has turned negative, our delta
hedging has gone toxic and, trust me, you do not want to hear about our gamma.
We can't even find our epsilons in the dark with both hands…

We have, of course, been in touch with the rating companies to update
our default-probability scenarios, particularly on the AAA rated investments we
own. They recommended a forecasting method using stochastics to regress the
drift-to-downgrade timescales for the past 100 years and throw them forward for
the next five minutes. The technical term for this is ``induction,'' though
those of you of a less quantitative bent may know it as ``guessing.''