Date: Sat, 29 Mar 1997 17:25:35 -0800 From: [EMAIL PROTECTED] (George C. Kaplan) Subject: Computer model blamed for $83 Million loss The *Wall Street Journal*, 28 March 1997, reports that the derivatives trading unit of Bank of Tokyo-Mitsubishi Bank Ltd. has incurred an loss of $83 Million as a result of a computer model that overvalued a portfolio. The problem came to light last summer, when the model was revised. Another model-related loss, $139 Million by National Westminster Bank PLC is also mentioned. The article points out the risks of increasingly complicated derivatives portfolios, which are so complex that traders have no choice but to use computer-based models to evaluate them. But other sources point out that the real risks are the old familiar ones of trusting the computer too much. Thomas Coleman of TMG Financial Products Inc. says, "I've never seen an options model which, when used for the things it was meant to do by people who understood it, has caused a $50 million to $100 Million problem." George C. Kaplan [EMAIL PROTECTED] 510-643-5651 -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 916-898-5321 E-Mail [EMAIL PROTECTED]
