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
