Learn from Experience
Trading floors are full of stories about when it all goes wrong. The media in particular can’t wait for banks to get it wrong so that they can be abused further. Sometimes these stories are entertaining and sometimes they are scary, but there is inevitably something to learn from them all.
- No change is a small change: There was a large 5-year credit derivative that was executed between two banks. It was on a portfolio of over a hundred different borrowers. A few years after it was executed, the middle office of the bank who bought credit insurance called up the middle office of the bank who sold credit insurance and said that there was a typo in the documentation. The middle office of the bank that sold the credit insurance ...
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