The Model Room · MR-007
The Model Named The Wrong Company. It Was Right About The Default. Being Right Made It Worse.
The model accurately predicted a credit default, but it incorrectly identified the target company. As a result, the hedge fund lost £218 million on an unhedged company while incurring an unnecessary £14 million in hedge premiums, demonstrating how being right made the outcome worse than being wrong would have been.
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