risk management and JPMorgan

CFA Level III
#1

How ironic to have been reviewing risk management in detail, only to learn about JPMorgan’s monumental bad credit trades and risk management failures. Definitely brings this somewhat dry material to life.

Reading the story reminded me of VAR plus the extensions like IVAR and particularly TVAR (tail-risk). Apparently JPMorgan made the bad credit arb trades as part of a TVAR hedging strategy. And during Dimon’s hastily scheduled conference call yesterday he said they had changed their daily 5% VAR from $67 mln to $129. Sounds like part of a question you might come across in QBank, lol.

#2

I don’t think they changed a control number .

They would have called the shots correctly this time instead of lowballing risk , so they can hedge better .

But it sounds like trying to lock the stables after the horses are stolen given the magnitude of the losses ( realized and anticipated Q2 .)

#3

TVAR still would not show what the largest negative outcome would be, just the average outcome below the VAR confidence interval. JPMorgan might be looking for some more/better risk managers, maybe a charterholder?