Was Yesterday The Worst Day For UBS In The History Of A Billion Universes?

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Nah, it was much worse.

Some people have questioned the "proclivity of UBS for getting involved in fiascos in which the bank believed it was taking relatively little risk but ended up losing large amounts of money" and a risk management policy that (really!) consisted of "still don't lose any money, but do more."

You might feel justified in those doubts about UBS risk management after reading (1) that stuff about the guy who lost all the moneys and (2) this:

Oops! UBS's maximum 95% value-at-risk in the second quarter was 98mm CHF, or around 113mm USD at current exchange rates [updated , ah, math]. So if its returns are normally distributed and that's a one-tail confidence interval it should have daily losses of over $68mm less than 16% of the time, $113mm less than 5% of the time, $205mm less than 2.3% of the time, $155mm or than 0.14% of the time ...

You see where I'm going with this. A $2 billion loss is, um, 29 standard deviations. That exploded Excel's brain but goofier methods suggest that a loss that big should occur about once in 10^185 days. Or the odds of it happening in the history of the universe are one in a trillion trillion trillion googols. Or so.

To be fair, people seem to think Adoboli's inverse miracle came from being long a whole crapload of CHF, which had a 20 standard deviation move in September when the SNB announced that it would defend a cap. Which also, if you believe in normal distributions, should never happen - although relatively less never than a loss of 20 times your VaR.

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