Margining Component of the Stock Market Crash of October 2008 - A Lesson of the Struggle with Combinatorial Complexity

In July 2005 the US stock market started using the risk-based approach to margining customer accounts gradually excluding from margining practice the strategy-based approach, which has been used for more than four decades. In this paper we argue that this change has a direct link to the stock market crash of October 2008. We also show that among the main reasons of this change are high strategy-based margin requirements in comparison with much lower risk-based, the combinatorial complexity of the strategy-based approach, and the failure of the brokerage industry to adopt the achievements of combinatorial optimization.