Morgan Stanley Traders Lost $390 Million in One Day in August

[IluvVol]

Quote from OldTrader:

Kind of an ironic statement in light of the size of loss these probability experts took in August, don't you think?

OldTrader

Well, what do we know? Really nothing. Its all rumors, news reporting. The number is out there. What contributed to this loss? A single trader, a group. Did the manager know? Traders are sometimes wrong on a bet. As long as it lies within the risk limits, it can happen. If the limits are violated action needs to be taken. Its the same with poker. You can be a very restrictive player, but you wont ever make it. Sometimes with a good hand (even you know there might be one better hand that beats you) you need to plunk down a stash because the probabilities are in your favor. And on an occasion here or there you will indeed be beaten. So? As long as you did not bet the house its fine. This is the name of the game. Otherwise join a mutual fund and clock in from 9 to 6 and do your end-quarter adjustments. Top traders are not paid so well for generating low returns. They are paid because they can stomach risk.

By the way, what is 300 million loss or so. Are you equally accusing the desks who lost a few billion in each bank betting on mortgage arm repacks or CMO blowups? Is that fine just because all banks lost some? If this loss was because someone violated limits or traded unauthorized that is an entirely different story but dont blame some computer programs or statistics for that. That, imho, is ironic.

 

[IluvVol]

Quote from Bogan7:

You are that troll T28 piss off you multihandle wanker no one is interested in the shit you go on about except that is your other handles

Its easy to accuse someone out of your anonymity, isnt it? No I am not. And I dont care what you think. What did that other person do to you that you dislike him/her so much? Got your ego hurt?

So, who are you? Whats your name?

 

[telozo]

Quote from Hydroblunt:

Look it's simple. When there are 3 cups, it's a 1/3 chance you are right and 2/3 that you are wrong. Once one cup is removed, it's now 50/50 but only so if you actually make the switch. Otherwise, you are really sticking to your old choice which is STILL 1/3 correct, 2/3 incorrect.

It makes more sense if you increase the numbers, like start with 10, pick one, then the host removes 5 wrong ones and asks you if you want to stick with your original choice.

It's a good question to ask and is somewhat applicable to trading. Often variables involved in decision making are affected in a similiar fashion, especially if you lean toward arbitrage, relative value & mean reversion strategies. It tests your ability to understand guesswork in trading, recognizing potentially wrong choice with new information, then making a better decision. Because each trade is essentially a guess based on the information you use at the time. Especially when it comes to the Quants, it's just repeated guesswork over and over based on a model.

Problem with quants is the lack of knowledge and experience of the key driving factors, greed & fear. That's no Monty Hall concept, it's psychology. For example, (and I think arrogance was a key flaw in this), when these quant progs started failing in August, someone at MS should have said "Gee, the rest of the big boys are running the same Quant crap and if we are puking, they must be too, so why not capitalize on that?" But I don't think those type of guys work there anymore.

There is a small but important condition to make the solution in the 3 cup case stand: we assume that the dealer knows where the coin is and he always removes the cup that doesn't contain the coin. If the dealer doesn't know or doesn't care, then switching doesn't improve your chances, but it doesn't reduce them either.

 

[sprstpd]

Quote from telozo:

There is a small but important condition to make the solution in the 3 cup case stand: we assume that the dealer knows where the coin is and he always removes the cup that doesn't contain the coin. If the dealer doesn't know or doesn't care, then switching doesn't improve your chances, but it doesn't reduce them either.

But the story gives you the fact that a cup without the coin is turned over. Whether the dealer knows where the coin is or not makes no difference. The cup has already been flipped over and there was no coin in that cup.

 

[Equalizer]

Quote from OldTrader:

Kind of an ironic statement in light of the size of loss these probability experts took in August, don't you think?

OldTrader

Kind of a useless comment don't you think? A implies B, but B does not necessarily imply A.

MS having Quant PhDs don't mean these guys can trade (read: GTF out of these positions like NOW you mofos, 'cause the models ain't working - oh phuck, everyone else has just concluded the same!!! Kaboom.). Since we don't know sheah about what really happened, like who was trading, were the models followed, WTF was risk doing (they exceeded VaR on numerous days). Sounds like a typical IB phuck up. Profit is king and they were probably waiting for things to turn, 'cause their bonuses depend on it.

 

[IluvVol]

Quote from sprstpd:

But the story gives you the fact that a cup without the coin is turned over. Whether the dealer knows where the coin is or not makes no difference. The cup has already been flipped over and there was no coin in that cup.

The point is that the deal knows BEFORE he choses a cup where there is no coin. So there is an absolute certainty that the dealer will turn over a cup with no coin. Yes, knowlede of where the coin is by the dealer is essential to yield the same result (at least knowledge of at least one cup with no coin that he then turns over).

 

[vectors101]

investors didn't lose anything in july and august when they book profits.

the broker lost money but made millions previously.

so who is the idiot.

Quote from ASusilovic:

Oct. 10 (Bloomberg) -- Morgan Stanley, the world's second- biggest securities firm, said its quantitative strategy traders lost $390 million during a single day in August as their computer models failed to account for ``widespread'' investor selling.

The company's traders lost money on 14 days during the quarter ended Aug. 31, ``with the largest single-day trading loss being $390 million,'' the New York-based firm said in a quarterly regulatory filing today.

Morgan Stanley said last month that the quantitative strategies group lost $480 million during the quarter after they were caught off-guard when other investors sold securities to reduce borrowings. The company disclosed today that daily trading losses during the quarter exceeded the firm's trading value-at- risk calculation on six days during the quarter.

The filing with the U.S. Securities and Exchange Commission also shows that the firm's traders generated more than $100 million of trading revenue on about 19 days during the quarter.

To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net .


http://www.bloomberg.com/apps/news?pid=20601087&sid=aY4.Y24hPlxQ&refer=home

:eek: :eek: :eek:

 

[vectors101]

there total position must be over a billion dollars are more to lose 400 million trading the market to lose that much

but they made a lot of money before..so one loss etc...these quants strategies have losses and wins....even if they lose $400 million in august they made billions before..

Quote from IluvVol:

Well, what do we know? Really nothing. Its all rumors, news reporting. The number is out there. What contributed to this loss? A single trader, a group. Did the manager know? Traders are sometimes wrong on a bet. As long as it lies within the risk limits, it can happen. If the limits are violated action needs to be taken. Its the same with poker. You can be a very restrictive player, but you wont ever make it. Sometimes with a good hand (even you know there might be one better hand that beats you) you need to plunk down a stash because the probabilities are in your favor. And on an occasion here or there you will indeed be beaten. So? As long as you did not bet the house its fine. This is the name of the game. Otherwise join a mutual fund and clock in from 9 to 6 and do your end-quarter adjustments. Top traders are not paid so well for generating low returns. They are paid because they can stomach risk.

By the way, what is 300 million loss or so. Are you equally accusing the desks who lost a few billion in each bank betting on mortgage arm repacks or CMO blowups? Is that fine just because all banks lost some? If this loss was because someone violated limits or traded unauthorized that is an entirely different story but dont blame some computer programs or statistics for that. That, imho, is ironic.

 

[vectors101]

2 out of 3 aint bad is the motto for these strategies.

Quote from Q12:

not to me...

Seems to me most traders would have chosen the "other" cup and drastically incresed their odds of picking the correct one. Isn't this what trading is all about? Whatever your setup happens to be, hopefully there's some sort of theoretical edge. If so, over the long term you should make money (assuming your risk management, etc. is in order)... simply put, you're trading prob & statistics.

 

[ASusilovic]

Hum....can any of the bright guys overe here extrapolate the conditional probability and expectation FED is going to ease another 25 BP ? Or do I have only to take a look at FED FUND FUTURES ????

Maybe someone able to switch Monty Hall problem to FED FUND problem ???

Sorry, I am not a QUANT and not a statistician...