There has been a lot of self-righteous reporting in the business press regarding the "rogue trader" denting a bank's reputation, acting in "shady" ways, etc. The $2 billion lost in one trade would certainly qualify as an extreme event.
I invite readers to think about the entire spread of trade returns that a bank like UBS sees in any given period of time:
(I took the chart from this website, which illustrates the returns of using a particular trading strategy repeatedly. Whatever the strategies are used in aggregate by UBS traders, one should see a similar distribution, with a different average return and a different spread commensurate with the amount of aggregate risk taken by the traders.)
We call the negative outliers "rogue traders". What do we call the positive outliers?
"Lucky"
No, that's wrong.
"Lucky and rich"
Posted by: VagabondJim | 09/17/2011 at 09:25 PM
I suggest reading Nicholas Taleb's book "Fooled by Randomness". Essentially traders should be covering themselves for the risk of losses, by buying the appropriate derivatives. That way if their intuition or models are wrong they don't make massive losses. The problem is that there is a price for those derivatives, so if they are right they obtain a reduced profit.
Posted by: Ken | 09/18/2011 at 02:51 AM
Liked you on Facebook, too. =)
Posted by: Chaquetas Hombre Belstaff | 11/03/2011 at 12:28 PM
What do we call the positive outliers? I guess there is no adequate answer.
Posted by: Phen375 | 11/08/2011 at 09:02 AM
Love those! I enjoy following your posts on facebook and rss!
Posted by: muska supra shoes | 11/12/2011 at 05:34 AM
Positive outliers are just lucky.
Posted by: Nuratrim | 12/23/2011 at 06:11 PM