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daveangel
Posts: 17031
Joined: October 20th, 2003, 4:05 pm

JP Morgan- 2 billion trade loss

May 24th, 2012, 4:07 pm

QuoteOriginally posted by: deepdish7QuoteOriginally posted by: bearishQuoteOriginally posted by: looooooMaybe I'm the only one not getting it right, but please kindly help me understand this issue...I read from an article it was supposed to be a hedge while the WSJ article someone posted the link to says it's not an hedge. If JPM invested in some highly rated securities using their excessive deposits (some say IG corporate bonds and some others say it's TIPS but anyway regardless...), their position in the CDX IG index - a bet on the flattening of the long-maturity end of the term structure - is not a hedge but speculation most obviously. Am I correct? Looks to me like it was the stupid mistake the London Whale made - confusing speculation with hedging - and it was meant to be speculation in the first place, but just can't get why the media says it was meant to be a hedge but turned out to be the opposite...None of us outside of JPM really has much of a chance to know exactly what the positions were. But, my understanding based on general market chatter is that they were a combination of short and long positions in both the underlying indices (IG and HY) and tranches across the three traded maturities. If that is roughly true, there are two pertinent observations: 1) you need a model to analyze whether you are net long or short "credit risk", let alone your exposure to credit curve steepening/flattening, correlation changes, and other higher order risks; 2) simple-minded terms like "hedging" and "speculation" are not remotely adequate to describe the reshaping of your risk profile inherent in such positions.I would hardly imagine someone in the counterparty exposure hedging department of the bank doing their hedges via bets on curve steepening/flattening. it was a speculation, let's put true names on thingsthis was not the cpty hedging desk ... this is the CIO. the invest the firms assets
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deepdish7
Posts: 45
Joined: October 16th, 2010, 6:57 pm

JP Morgan- 2 billion trade loss

May 25th, 2012, 4:20 am

Quotethis was not the cpty hedging desk ... this is the CIO. the invest the firms assetsexactly
 
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daveangel
Posts: 17031
Joined: October 20th, 2003, 4:05 pm

JP Morgan- 2 billion trade loss

May 25th, 2012, 5:49 am

QuoteOriginally posted by: deepdish7Quotethis was not the cpty hedging desk ... this is the CIO. the invest the firms assetsexactlyexactly what ? How is this the same as counterparty exposure management ?
knowledge comes, wisdom lingers
 
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rmax
Posts: 6080
Joined: December 8th, 2005, 9:31 am

JP Morgan- 2 billion trade loss

May 25th, 2012, 7:18 am

I think bearish put his finger on it...however I know of cases where "market chatter" leads to HF having a good guess of someone's position. They smell the blood in the water and blow the guy up. Difference here is that now EVERYONE in the market knows the JP position. What bid/offer would you show them?
 
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deepdish7
Posts: 45
Joined: October 16th, 2010, 6:57 pm

JP Morgan- 2 billion trade loss

May 25th, 2012, 8:18 pm

QuoteOriginally posted by: daveangelQuoteOriginally posted by: deepdish7Quotethis was not the cpty hedging desk ... this is the CIO. the invest the firms assetsexactlyexactly what ? How is this the same as counterparty exposure management ?exactly that it didn't have anything to do with hedging. CIO does investments, not hedging. so it's strange to see anybody believe they did any "hedging" out there in CIO dept
 
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rmax
Posts: 6080
Joined: December 8th, 2005, 9:31 am

JP Morgan- 2 billion trade loss

May 28th, 2012, 7:12 am

QuoteOriginally posted by: deepdish7QuoteOriginally posted by: daveangelQuoteOriginally posted by: deepdish7Quotethis was not the cpty hedging desk ... this is the CIO. the invest the firms assetsexactlyexactly what ? How is this the same as counterparty exposure management ?exactly that it didn't have anything to do with hedging. CIO does investments, not hedging. so it's strange to see anybody believe they did any "hedging" out there in CIO deptI disagree entirely, and I think what you have stated is a very dangerous assumption.If you want to be exposed to the implied volatlity of an underlying, what do you do? Well there are a couple of things actually, but one of them would be to buy either a call or put and then sell or buy the underlying on the delta. Hedging is not about removing risk, it is about removing risks you do not want to be exposed to.
 
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deepdish7
Posts: 45
Joined: October 16th, 2010, 6:57 pm

JP Morgan- 2 billion trade loss

May 28th, 2012, 4:59 pm

So gamma trading means "hedging" for you either???
 
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daveangel
Posts: 17031
Joined: October 20th, 2003, 4:05 pm

JP Morgan- 2 billion trade loss

May 28th, 2012, 8:11 pm

QuoteOriginally posted by: deepdish7So gamma trading means "hedging" for you either???most surely that is correct
knowledge comes, wisdom lingers
 
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deepdish7
Posts: 45
Joined: October 16th, 2010, 6:57 pm

JP Morgan- 2 billion trade loss

May 31st, 2012, 4:22 pm

 
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loooooo
Posts: 75
Joined: October 7th, 2009, 3:28 pm

JP Morgan- 2 billion trade loss

June 8th, 2012, 5:21 am

QuoteOriginally posted by: rmaxQuoteOriginally posted by: deepdish7QuoteOriginally posted by: daveangelQuoteOriginally posted by: deepdish7Quotethis was not the cpty hedging desk ... this is the CIO. the invest the firms assetsexactlyexactly what ? How is this the same as counterparty exposure management ?exactly that it didn't have anything to do with hedging. CIO does investments, not hedging. so it's strange to see anybody believe they did any "hedging" out there in CIO deptI disagree entirely, and I think what you have stated is a very dangerous assumption. If you want to be exposed to the implied volatlity of an underlying, what do you do? Well there are a couple of things actually, but one of them would be to buy either a call or put and then sell or buy the underlying on the delta. Hedging is not about removing risk, it is about removing risks you do not want to be exposed to.In reality, it's hard to draw a clear line between hedging and speculation unlike the textbook definitions.However, a partial hedging position is also partially speculation; exposing one's portfolio to gamma risk is considered a bet on volatility, although with its exposure to delta risk hedged away. Likewise, a long/short position that was (and probably still is) popular in the CDO market is essentially a bet on widening/narrowing of default correlation. But at the same time, it is designed to be immunized against unfavorable first-order movements, so some may call it a hedge.
 
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ppauper
Posts: 70239
Joined: November 15th, 2001, 1:29 pm

JP Morgan- 2 billion trade loss

June 13th, 2012, 9:42 am

eating crow ?
 
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daveangel
Posts: 17031
Joined: October 20th, 2003, 4:05 pm

JP Morgan- 2 billion trade loss

June 19th, 2012, 3:47 pm

According to the WSJ Bruno Iksil would wear the same shirt several days in a row... why does this suprise anyone ? he is French after all.
knowledge comes, wisdom lingers
 
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Owais
Posts: 220
Joined: April 22nd, 2008, 10:58 am

JP Morgan- 2 billion trade loss

June 28th, 2012, 11:03 am

 
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ppauper
Posts: 70239
Joined: November 15th, 2001, 1:29 pm

JP Morgan- 2 billion trade loss

June 28th, 2012, 11:28 am

QuoteOriginally posted by: daveangelAccording to the WSJ Bruno Iksil would wear the same shirt several days in a row... why does this suprise anyone ? he is French after all.not a fan of the French, Dave ?
 
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daveangel
Posts: 17031
Joined: October 20th, 2003, 4:05 pm

JP Morgan- 2 billion trade loss

June 29th, 2012, 9:21 am

QuoteOriginally posted by: ppauperQuoteOriginally posted by: daveangelAccording to the WSJ Bruno Iksil would wear the same shirt several days in a row... why does this suprise anyone ? he is French after all.not a fan of the French, Dave ?Whatever gave you that impression ?Word is that JP Morgan will be upsizing their loss to $5bn....
knowledge comes, wisdom lingers
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