Nervous hedge funds managers are stress-testing their portfolios and searching for ways of protecting themselves against their worst nightmare -- a potential break-up of the euro zone, Reuters reports.
With talks on restructuring Greece's debt mountain still deadlocked, and the exit of one of more countries from the euro seen as a small but definite possibility, funds are modeling scenarios ranging from a 50 percent slump in European stocks or a 45 percent fall in the oil price to a 30 percent rise in gold.
Managers are also trying to dig out old computer programs they once used to model the behavior of currencies such as the drachma or the deutschmark as they prepare for an event for which -- even after the 2008 collapse of Lehman Brothers -- they effectively have no precedent. Many, having already trimmed risk, are piling into credit default swaps or deeply out-of-the-money options, hoping they pick a counterparty that can withstand the shock of a break-up....
Find out more at http://www.reuters.com/article/2012/02/01/us-hedgefunds-eurozone-idUSTRE8100K120120201
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