How to Lose $2 billion Dollars
-
Upload
renee-diresta -
Category
Economy & Finance
-
view
11.389 -
download
3
description
Transcript of How to Lose $2 billion Dollars
![Page 1: How to Lose $2 billion Dollars](https://reader033.fdocuments.in/reader033/viewer/2022061202/547b9826b37959442b8b4e4d/html5/thumbnails/1.jpg)
How do you lose
$2 billion dollars?
![Page 2: How to Lose $2 billion Dollars](https://reader033.fdocuments.in/reader033/viewer/2022061202/547b9826b37959442b8b4e4d/html5/thumbnails/2.jpg)
Traders use models to determine “fair value”
![Page 3: How to Lose $2 billion Dollars](https://reader033.fdocuments.in/reader033/viewer/2022061202/547b9826b37959442b8b4e4d/html5/thumbnails/3.jpg)
“And then that happened…”
![Page 4: How to Lose $2 billion Dollars](https://reader033.fdocuments.in/reader033/viewer/2022061202/547b9826b37959442b8b4e4d/html5/thumbnails/4.jpg)
Hedging reduces risk
0 25 50 75 100-$60
-$40
-$20
$0
$20
$40
$60
Married Put Option - 50 put, $50 stock
StockPutOverall
Profi
t/Lo
ss
Stock Price
max loss!
![Page 5: How to Lose $2 billion Dollars](https://reader033.fdocuments.in/reader033/viewer/2022061202/547b9826b37959442b8b4e4d/html5/thumbnails/5.jpg)
So now. JPMorgan.
“This trading may not have violated the Volcker Rule, but it violated the Dimon principle.”
![Page 6: How to Lose $2 billion Dollars](https://reader033.fdocuments.in/reader033/viewer/2022061202/547b9826b37959442b8b4e4d/html5/thumbnails/6.jpg)
Step 1: Invest excess deposits in high-grade corporate bonds
![Page 7: How to Lose $2 billion Dollars](https://reader033.fdocuments.in/reader033/viewer/2022061202/547b9826b37959442b8b4e4d/html5/thumbnails/7.jpg)
These companies wouldn’t default…
Beware of systematic risk.
![Page 8: How to Lose $2 billion Dollars](https://reader033.fdocuments.in/reader033/viewer/2022061202/547b9826b37959442b8b4e4d/html5/thumbnails/8.jpg)
Step 2: Prudently hedge with credit default swaps
$
t0
t1 t3t2 t4 t5
tn
Protection buyer
Protection seller
$ $$ $
![Page 9: How to Lose $2 billion Dollars](https://reader033.fdocuments.in/reader033/viewer/2022061202/547b9826b37959442b8b4e4d/html5/thumbnails/9.jpg)
(meaning, buy insurance)
![Page 10: How to Lose $2 billion Dollars](https://reader033.fdocuments.in/reader033/viewer/2022061202/547b9826b37959442b8b4e4d/html5/thumbnails/10.jpg)
Oh, wait.
No double-dip recession!
European Central Bank backstopping European banks!
![Page 11: How to Lose $2 billion Dollars](https://reader033.fdocuments.in/reader033/viewer/2022061202/547b9826b37959442b8b4e4d/html5/thumbnails/11.jpg)
Step 3: SELL insurance.
![Page 12: How to Lose $2 billion Dollars](https://reader033.fdocuments.in/reader033/viewer/2022061202/547b9826b37959442b8b4e4d/html5/thumbnails/12.jpg)
Eesh
Fairly normal
![Page 13: How to Lose $2 billion Dollars](https://reader033.fdocuments.in/reader033/viewer/2022061202/547b9826b37959442b8b4e4d/html5/thumbnails/13.jpg)
1 + 1 = 5
![Page 14: How to Lose $2 billion Dollars](https://reader033.fdocuments.in/reader033/viewer/2022061202/547b9826b37959442b8b4e4d/html5/thumbnails/14.jpg)
Step 4: Go big or go home
![Page 15: How to Lose $2 billion Dollars](https://reader033.fdocuments.in/reader033/viewer/2022061202/547b9826b37959442b8b4e4d/html5/thumbnails/15.jpg)
“Markets can remain irrational longer than you and I can remain solvent.”
-John Maynard Keynes (maybe)
![Page 16: How to Lose $2 billion Dollars](https://reader033.fdocuments.in/reader033/viewer/2022061202/547b9826b37959442b8b4e4d/html5/thumbnails/16.jpg)
![Page 17: How to Lose $2 billion Dollars](https://reader033.fdocuments.in/reader033/viewer/2022061202/547b9826b37959442b8b4e4d/html5/thumbnails/17.jpg)
![Page 18: How to Lose $2 billion Dollars](https://reader033.fdocuments.in/reader033/viewer/2022061202/547b9826b37959442b8b4e4d/html5/thumbnails/18.jpg)
“In hindsight, the new strategy was flawed, complex, poorly reviewed, poorly executed, and poorly monitored…”
-Jamie Dimon
![Page 19: How to Lose $2 billion Dollars](https://reader033.fdocuments.in/reader033/viewer/2022061202/547b9826b37959442b8b4e4d/html5/thumbnails/19.jpg)
$JPM stock -23%
![Page 20: How to Lose $2 billion Dollars](https://reader033.fdocuments.in/reader033/viewer/2022061202/547b9826b37959442b8b4e4d/html5/thumbnails/20.jpg)