Consider traders at a trading desk in an investment bank. Assume that top management and HR would like to have a formula through which they would be able to assess the probability of a trader not conducting himself (herself) properly. The idea why top management would like to have such a formula is that it would tell them which trader or trading desk would be more susceptible to misconduct that can lead to damages to the firm. Before doing this problem, you may want to go over that part of the lectures on rogue trading rogue trading.

a) List the various forms of potential traders misconduct.

b) What data should be collected and what measurements should be taken on a regular basis to estimateprobabilities of any misconduct by any given trader?

c) Describe the measures the firm should take to mitigate its vulnerability to potential operational risk eventsassociated with traders misconduct.

This part should be maximum 1.5 pages (1.5 spaced). You are encouraged to present (at least some of) your results in either tables and/or diagrams which may go on additional pages. I expect that you should not be working on this part for more than 5 hours.