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

Andrew Metrick

Journal of Financial Crises, 2019, vol. 1, issue 2, 75-91

Abstract: 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 four days in a row in January 2012. In response, the CIO changed to 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 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.

Keywords: Value at Risk; Chief Investment Officer; Iskil; Synthetic Credit Portfolio; London Whale (search for similar items in EconPapers)
JEL-codes: G01 G28 (search for similar items in EconPapers)
Date: 2019
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