Product Involved in the disaster- Askin Capital Management owned three hedge funds that

sustained significant losses in 1994, Granite Partners, Granite Corporation, and Quartz Hedge Fund.
How does the product basically work?- hedge fund is nothing more than an investment
company that invests its clients' money in alternative investments to either beat the market
or provide a hedge against unforeseen market changes.

Cause of failure- Askin Capital Management is a case of wrong investment priorities by investing
in mortgage-backed securities and speculating on interest rates. David Askin was a mortgage trader
who had floated investment funds, investing in high-quality mortgage securities. On the promise of
liquidity high and leverage low, "risk neutral" investment strategies, investors handed over some USD
630 million to Askin's hedge funds - Granite Partners, Granite Corporation, and Quartz Hedge Fund.

Askin invested in PO strips of CMOs.

However, in 1994, interest rates, especially short-term rates, rose dramatically. As is the feature of PO
strips, when interest rates rise, prepayments come down and the value of PO strips falls.

Four Askin funds with $600 million in assets filed for bankruptcy when the rising rates drove down
the market values of POs. Investors lost virtually everything, and the collapse stopped the MBS
market in its tracks, generating a string of lawsuits, some of which are still pending. Askin was barred
by the SEC from the securities industry for two years, and agreed to pay a $50,000 fine without
admitting or denying guilt.

Principal only strips (PO strips) are a fixed-income security where the holder receives the non-interest
portion of the monthly payments on the underlying loan pool. Principal only strips are created when
loans are pooled into securities and then split into two types.
Although principal only strips can be created out of any debt-backed security, the term is most
strongly associated with mortgage-backed securities (MBS). The mortgage-backed securities that are
split into PO and IO strips are referred to as a stripped MBS. Investors in PO strips benefit from
faster repayment speeds while also being protected from contraction risk. This means that, unlike a
usual bond or traditional MBS, the PO investor will benefit from decreases in the interest rate as the
loans are likely to get repaid faster.

State the type of risk- systematic, non systematic risk

Askin Capital Management Fixed-income arbitrage (mortgage-backed) 1994 660 Failed hedge,
market losses, margin calls