Wall Street firms traditionally compensated their traders with a share of the trading profits that they generated. Explain the practice might have affected trader’s willingness to assume risk. Determine the agency problem this practice engendered. Introduction: When traders are compensated with profit it means that their work is appreciated, and they are motivated to reach further targets.

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Chapter 1, Problem 18PS

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To Determine: Wall Street firms traditionally compensated their traders with a share of the trading profits that they generated. Explain the practice might have affected trader’s willingness to assume risk. Determine the agency problem this practice engendered.

Introduction: When traders are compensated with profit it means that their work is appreciated, and they are motivated to reach further targets.

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