IDEAS home Printed from https://ideas.repec.org/p/ysm/ypfswp/46786.html
   My bibliography  Save this paper

JPMorgan Chase London Whale C: Risk Limits, Metrics, and Models

Author

Listed:
  • Arwin G. Zeissler
  • Andrew Metrick

Abstract

All major financial institutions use various risk limits, metrics, and models to monitor the risk of their activities. Value at Risk (VaR) is one of the most commonly used ways to measure and monitor market risk. At JPMorgan Chase (JPM), very large derivative positions established by Bruno Iksil in the Synthetic Credit Portfolio (SCP) caused the bank’s Chief Investment Office (CIO) to exceed its VaR limit for 4 days in a row in January 2012. In response, the CIO adopted a new VaR model on January 30, which appeared to immediately reduce VaR by half. However, JPM soon discovered that this new VaR model had not been properly implemented and included formula and operational errors, and the bank went back to using the previous model. In addition, Iksil, other SCP staff, and their managers also disregarded several other risk metrics and limits during the first quarter of 2012. However, after JPM’s Chief Investment Officer learned on March 23 that Iksil and the SCP had breached the CIO’s mark-to-market Credit Spread Widening 10% risk limit the day before, she ordered trading of the SCP to be halted immediately.

Suggested Citation

  • Arwin G. Zeissler & Andrew Metrick, 2014. "JPMorgan Chase London Whale C: Risk Limits, Metrics, and Models," Yale School of Management YPFS Cases 46786, Yale School of Management, revised Feb 2015.
  • Handle: RePEc:ysm:ypfswp:46786
    as

    Download full text from publisher

    File URL: http://som.yale.edu/download-ypfs/001-2014-2C-V1-JPMorgan-C-REVB.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Systemic Risk; Financial Crises; Financial Regulation;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ysm:ypfswp:46786. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/smyalus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (email available below). General contact details of provider: https://edirc.repec.org/data/smyalus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.