What Role Did Quants Play in the Enron Scandal?

[UuxjKAMlqI]

One cause of the Enron scandal was improper use of "mark-to-model" accounting. Since quants work with models, I assume quants contributed to the scandal in some way. Do any of you have insight regarding this?

 

[Ken Abbott]

I don’t recall heavy quant involvement. Certainly there were model-driven transactions, but the key models used in power (as I recall) are scheduling-oriented. Power management is perhaps the operations research professional’s highest calling. I used to think it was airline scheduling, but then I learned about the dynamics associated with LMP and I was blown away by their complexity.

Again, though, these modes are for scheduling more than pricing. I believe the Enron issues were more bald-faced fraud than model manipulation.

 

[UuxjKAMlqI]

Thanks for the reply Ken. Your remark about LMP is interesting.

 

[Ken Abbott]

Thanks for the reply Ken. Your remark about LMP is interesting.

Go view some of the video lectures at pjm.com. The complexity is mind-blowing.