In this chapter, you will learn about the history behind Long Term Capital Management’s notoriety. We will also introduce many of the statistical measures used to calculate risk and return in the hedge fund industry.

When you have completed this chapter, you should be able to:

• Give reasons for the failure of Long Term Capital Management

• Define and interpret the various statistical measures used in the hedge fund industry

• Calculate and analyze these measures - annualized return, geometric average monthly return, standard deviation, annualized standard deviation, largest drawdown,
  alpha, Sharpe ratio, and Sortino ratio

• Explain how these measures are used in the hedge fund industry