In 2012, JPMorgan Chase Company (that specializes in banking and financial services) has accidently reported the trading loss of $6 billion due the badly conceived trades of the company. Since the company had been quite well-controlled and profitable over years, the trading loss of $6 billion caused a lot of confusion in JPMorgan’s Central Investment Office. Later on, the investigators have found that the company has not lost $6 billion but this amount of money has been displayed due to the Excel spreadsheet error. The error occurred while one of the JPMorgan Chase quantitative analysts was working on the new model of the Value at Risk for the synthetic credit portfolio. Value at risk model is used to measure financial risks within a company over a particular time frame. There are three main variables that are used in the model: the time frame, the amount of potential loss, and the probability of the potential loss.
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According to Lopez (2013), the Chief Investment Office has reported that the new model “operated through a series of Excel spreadsheets, which had to be completed manually, by a process of copying and pasting data from one spreadsheet to another.” The Model Review Group approved the model but stated that the model should be automated. However, after the loss of $6 billion has been declared, the Model Review Group found out that the model was not automated and all the functions were manually copied and pasted from one spreadsheet to another. Moreover, according to Kwak, the spreadsheet contained other errors in the formulas such as “after subtracting the old rate from the new rate, the spreadsheet divided by their sum instead of their average, as the modeler had
According to Lopez (2013), the Chief Investment Office has reported that the new model “operated through a series of Excel spreadsheets, which had to be completed manually, by a process of copying and pasting data from one spreadsheet to another.” The Model Review Group approved the model but stated that the model should be automated. However, after the loss of $6 billion has been declared, the Model Review Group found out that the model was not automated and all the functions were manually copied and pasted from one spreadsheet to another. Moreover, according to Kwak, the spreadsheet contained other errors in the formulas such as “after subtracting the old rate from the new rate, the spreadsheet divided by their sum instead of their average, as the modeler had