Traders Rewriting Risk Models After Oil’s Plunge Below Zero
- Traditional options models assume prices can’t go below zero
- Wall Street scramble to recalculate positions adds to mayhem
Photographer: Eddie Seal/Bloomberg
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Oil’s plunge below zero for the first time in history hasn’t just sent shockwaves through the industry. It has also literally broken the models that many traders rely on to calculate risk.
For Wall Street’s biggest banks, that has meant a frantic scramble over the past 24 hours to recalculate the value and riskiness of their trading books to account for a world in which oil can go negative.