Excel and The London Whale

The problems of using Excel within financial institutions are well-known – the control risks are huge because it’s so easy for a rogue trader to manually edit trade data/market data and re-save the sheet. This article describes the role Excel played in under-estimating the risks involved in financing The London Whale’s trading strategies:

JPMor­gan’s Chief Invest­ment Office need­ed a new value-at-risk (VaR) model for the syn­thet­ic cred­it port­fo­lio (the one that blew up) and assigned a quan­ti­ta­tive whiz (“a London-based quan­ti­ta­tive expert, math­e­mati­cian and model devel­op­er” who pre­vi­ous­ly worked at a com­pa­ny that built ana­lyt­i­cal mod­els) to cre­ate it. 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.”

Another question is, how do you test a spreadsheet? And how do you re-use fragments of a sheet?

the spread­sheets that peo­ple cre­ate with Excel are incred­i­bly frag­ile. There is no way to trace where your data come from, there’s no audit trail (so you can over­type num­bers and not know it), and there’s no easy way to test spread­sheets

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