How do you lose $2 billion dollars?

Ignite Talk from Foo Camp 2012. Posted here for embedding purposes, but sadly there's no way to give it more context; to see the talk, go to http://blog.noupsi.de.

Transcript

1. How do you lose $2 billion dollars?
2. Traders use models to determine “fair value”
3. “And then that happened…”
4. Hedging reduces risk -$60 -$40 -$20 $0 $20 $40 $60 $0 $25 $50 $75 $100 Profit/Loss Married Put Option - 50 put, $50 stock Stock Put Overall Stock Price max loss!
5. So now. JPMorgan. “This trading may not have violated the Volcker Rule, but it violated the Dimon principle.”
6. Step 1: Invest excess deposits in high-grade corporate bonds
7. These companies wouldn’t default… Beware of systematic risk.
8. Step 2: Prudently hedge with credit default swaps $ t0 t1 t3 t2 t4 t5 tn Protection buyer Protection seller $ $ $ $
9. (meaning, buy insurance)
10. Oh, wait. No double-dip recession! European Central Bank backstopping European banks!
11. Step 3: SELL insurance.
12. Eesh Fairly normal
13. 1 + 1 = 5
14. Step 4: Go big or go home
15. “Markets can remain irrational longer than you and I can remain solvent.” -John Maynard Keynes (maybe)
18. “In hindsight, the new strategy was flawed, complex, poorly reviewed, poorly executed, and poorly monitored…” -Jamie Dimon
19. $JPM stock -23%