Suzanne Evans
Well-Known Member
FRM Fun 10. JPMorgan's CIO VaR
JPMorgan's first quarter filing (Q1 10Q) originally reported a value at risk (VaR) of $67 million for its CIO desk (recall the CIO desk put on the synthetic credit derivative trade that's lost the firm ~$5.9 billion) under a new version of their VaR model. The same VaR was later restated to $129 million, when JPMorgan reinstated their old model. Colin Lokey argues that JPMorgan switched from the old to the new VaR model precisely in order to justify a risker position(s), see http://seekingalpha.com/article/713571-jpmorgan-likely-switched-to-new-model-to-pave-way-for-risky-trade.
According to the published task force report (see https://www.dropbox.com/s/l9plg31ga9zujkf/JP-Morgan-CIO_Taskforce_FINAL_0713.pdf) in Early May: "VaR model analyzed and implementation errors detected; previous model reinstated."
To recap (as the above links are NOT needed to answer the question): the old VaR model produced a $129 VaR, but JPMorgan switched to a new VaR model that produced a $67 million VaR, under otherwise identical portfolio and market circumstances.
Question:
Here is the JPM Q2 10Q: http://www.sec.gov/Archives/edgar/data/19617/000001961712000213/jpm-2012033110q.htm
JPMorgan's first quarter filing (Q1 10Q) originally reported a value at risk (VaR) of $67 million for its CIO desk (recall the CIO desk put on the synthetic credit derivative trade that's lost the firm ~$5.9 billion) under a new version of their VaR model. The same VaR was later restated to $129 million, when JPMorgan reinstated their old model. Colin Lokey argues that JPMorgan switched from the old to the new VaR model precisely in order to justify a risker position(s), see http://seekingalpha.com/article/713571-jpmorgan-likely-switched-to-new-model-to-pave-way-for-risky-trade.
According to the published task force report (see https://www.dropbox.com/s/l9plg31ga9zujkf/JP-Morgan-CIO_Taskforce_FINAL_0713.pdf) in Early May: "VaR model analyzed and implementation errors detected; previous model reinstated."
To recap (as the above links are NOT needed to answer the question): the old VaR model produced a $129 VaR, but JPMorgan switched to a new VaR model that produced a $67 million VaR, under otherwise identical portfolio and market circumstances.
Question:
Here is the JPM Q2 10Q: http://www.sec.gov/Archives/edgar/data/19617/000001961712000213/jpm-2012033110q.htm
- Among the three (3) major VaR approaches, which does JPMorgan utilize?
- If the agenda was indeed to lower the VaR by manipulating the risk model, how might "implementation" be exploited to lower the VaR under this approach?