LJM Partners, a US investment management firm specialising in managed futures, is targeting institutional fund managers with its new trading and risk management system, dubbed LJM Storm (L
LJM Partners, a US investment management firm specialising in managed futures, is targeting institutional fund managers with its new trading and risk management system, dubbed LJM Storm (LJM System for Trade Optimization and Risk Management).
The firm says LJM Storm is the technical foundation behind its ability to offer custom trading strategies to hedge long equity portfolio risk. The first generation of LJM Storm incorporates SPX, VIX, options and variance futures.
Future generations of the technology will introduce additional underlying commodities including exchange-traded funds, currencies and interest rates. LJM says it plans to work with select clients to design customised investment strategies tailored to specific standards of S&P correlation, risk/volatility and performance.
LJM Storm was developed by a team headed by Dr Stanislav Ivanov, who was previously first vice-president for quantitative risk management at the Options Clearing Corporation, and who joined LJM as chief risk officer in April. Ivanov led the team that designed the Stans risk management system currently employed by OCC to manage risk for all cleared products.
‘We have placed a great deal of resources, capital and time in this effort, and we are already seeing it pay off,’ says LJM Partners president Scott Sykora. ‘The system is designed to help portfolio managers to manage risk – something that is easy to conceptualise in principle but very complex to deliver in a cost-effective manner.’
LJM believes the real-time system is the first of its kind to combine Monte Carlo simulations based on heavy-tailed asymmetric distributions, multi-dimensional implied and statistical models, volatility forecasting techniques and stress test scenario analysis, risk factor dependence modelling beyond traditional linear correlations, and coherent risk measure analysis that is more appropriate than value at risk estimates.
‘LJM Storm is a unique tool to model and manage risk, and we requested a custom trading strategy to help us hedge our exposure to the long equity component within our portfolios and to profit from any major downside dislocation,’ says Alex Allen, chief investment officer of London-based fund of hedge funds manager Eddington Capital Management.
‘With its new risk system, LJM provides a unique capability in the commodity trading adviser/managed futures arena in terms of strategy construction and testing, portfolio optimisation and risk management.’
Founded in 1998, LJM Partners is a commodity trading adviser and commodity pool operator registered with the US Commodity Futures Trading Commission and a member of the National Futures Association. It has more than USD200m in assets under management in trading strategies implementing various volatility products.
