except it involves one of the major players in global banking and equity and commodity markets (just speculation, of course.)
Jonathan Weil did a great job resurrecting one of the early excuses made by Enron before that company went the way of the do-do bird (please note the second to last sentence):
“Enron has performed an entity-wide value at risk analysis of virtually all of Enron’s financial instruments, including price risk management activities and merchant investments. Value at risk incorporates numerous variables that could impact the fair value of Enron’s investments, including commodity prices, interest rates, foreign exchange rates, equity prices and associated volatilities, as well as correlation within and across these variables. Enron estimates value at risk for commodity, interest rate and foreign exchange exposures using a model based on Monte Carlo simulation of delta/gamma positions which captures a significant portion of the exposure related to option positions. The value at risk for equity exposure discussed above is based on J.P. Morgan’s RiskMetrics(TM) approach. Both value at risk methods utilize a one-day holding period and a 95% confidence level. Cross-commodity correlations are used as appropriate.”
Maybe it was Enron hiding behind the supposed respectability of a JP Morgan risk model. Or maybe things at JP Morgan are a lot less copacetic than previously thought when it comes to “risk management” (cough-cough, choke- choke )
