IT Could Have Caught $2 Billion Rogue Trader 179
superapecommando writes "With the benefit of hindsight, IT experts are claiming that technical countermeasures at Swiss bank UBS could have stopped rogue trader Kweku Adoboli running up a $2 billion loss." If American Express and Visa can mine transaction data and put a stop order on credit cards when you unexpectedly buy gas out of state, it seems like there could be patterns to watch for when the amounts are in the billions, too.
Re:You think? (Score:3, Informative)
The problem isn't detecting the loss after the event the problem is predicting 23 sigma moves.
http://www.zerohedge.com/contributed/ubs-and-big-trade [zerohedge.com]
The trade was profitable until the SNB capped the CHF , capping the trade and trader in the process. At least that is a reasonable working hypothesis. Everything was fine until a week ago. What happened then? The Swiss National Bank announced a cap of their currency vs the Euro.
Why did he have such a large position ? That Risk & Management MUST have known about. And were OK with while it was a winner. When it became a loss, the trader was shafted.
Re:perhaps, perhaps not (Score:4, Informative)
Re:You think? (Score:4, Informative)
You do realize that a 23 sigma event implies the belief in a risk model where an event like this will happen once every 10^112 years?!! You also do realize that the entire financial sector is using these risk models, and are therefore still assuming that 23 sigma events will only happen once every googol lifetimes of the universe? A hedge like this, that will only fail once every googol universes as predicted by economics (and is thus a safe bet on the surface), tends to fail every few years.
Sigma measurements of risk is intellectual fraud, on a scale that is costing us billions.