Could Correlation-Based Risk Management Prevent 'London Whale' Size Losses?

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Could Correlation-Based Risk Management Prevent ‘London Whale’ Size Losses?

Dan Tudball and Professor Natalie Packham discuss using correlation-based risk management to mitigate the 2012 ‘London Whale’ losses.

Tuesday 26 October 2021

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Podcast description

QuantSpeak host, Dan Tudball, is joined by Professor Natalie Packham to discuss her recent research on the ‘London Whale’ incident of 2012 and how a new correlation-based approach could have helped prevent over $6 billion in losses.

Topics & Timestamps

[00:00 - 00:48] Introduction and Context

[00:48 - 02:07] Episode Preview and Guest Introduction

[02:07 - 04:27] Background: The London Whale Incident

[04:27 - 07:23] Portfolio Structure and Cultural Issues

[07:23 - 10:29] Risk Management and Front Office Mentality

[10:29 - 12:36] Oversight Failures and Regulatory Ambiguities

[12:36 - 16:47] Risk Measurement Practices and Historical Lessons

[16:47 - 19:26] Failures in Oversight and Reporting

[19:26 - 22:50] Organizational Incentives and the Value of Robust Risk Management

[22:50 - 26:32] Portfolio Construction, Hedging, and Risk Assessment

[26:32 - 33:40] Correlation Stress Testing: Methodology and Innovation

[33:40 - 40:20] Expanding the Approach: Bayesian Methods and Factor Models

[40:20 - 42:33] Ongoing Research and Conclusion.

Disclaimer

Podcasts are for informational purposes only and provided “as is” without any representation or warranty from Fitch Learning of any kind. Comments or statements expressed by speakers may not be those of the Fitch Learning. Fitch Learning is not providing advice or recommendations. Fitch Learning, its directors, officers, or employees do not accept any liability for any loss arising from the use of information.