Ali’s blog

Mostly quant stuff with occasional digressions

Derivatives are dynamite

Posted by alifinmath on January 24, 2008

Derivatives are dynamite in today’s global financial casino, and it appears that serious brass simply doesn’t know the technical details or the risks involved (if indeed anyone does):

Société Générale said on Thursday it had discovered €7bn ($10.26bn) of losses from a rogue trader in European stock futures and big US subprime mortgage writedowns, forcing the French bank into an emergency €5.5bn share issue.

It also raises serious questions about banks’ risk-management procedures and their ability to control their own trading positions.

The losses are a heavy setback for SocGen, which had previously told investors that it had “very limited exposure” to the turmoil in debt markets caused by the crisis in US subprime mortgages.

(Story in the FT)

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