At JPMorgan Chase, a Complex Strategy That Backfired

billion

$160

120

80

40

Net notional value, or volume. Its rapid rise alerted other investors.

A basket of corporate

bond derivatives

CDX.NA.IG.9 index

4 This strategy 2 and 3 grew so large that it became obvious to other investors who then saw an opportunity to bet against JPMorgan, which they viewed as cornered.

3 JPMorgan hedges against its first hedge 2 by betting against it. This is reportedly where the bank lost $2 billion on paper.

2 JPMorgan hedges its investment in that debt by buying insurance against losses on it. A major way it does that is by making bets with other investors on a basket of credit-default swaps, specifically an index of derivatives of about 120 companies’ debt called CDX.NA.IG.9.

1 JPMorgan Chase is invested in various corporate debt.

2011

2012