Saturday, February 17, 2007

upTick: Dynamic Pressure

In a Harvard Business School classroom, students in the Dynamic Markets class may have one minute to make a decision in a pressure cooker one called "the most stress I've experienced in ten years."

It's margin call time in a real-world market investment computer simulation called upTick. Students whose investments have fallen below margin requirement levels are being told they have sixty seconds to liquidate part of their portfolio to cover—effectively locking in a loss—or gamble that their investments will recover before insolvency is declared.

"Many students find this minute—and the decision of whether to ride it out and hope for a recovery or to blink and 'puke their position' (pardon the phrase but it's how actual traders describe it)—to be an extremely harrowing experience," says professor Joshua Coval.

And that's the point. Real life money managers face such stress frequently, but it's a hard thing to teach in a classroom.

Read the rest of this
Harvard Business School Working Knowledge article here.

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