76:" risk. The "fat tail" metaphor explicitly describes the situation of having more observations at either extreme than the tails of the normal distribution would suggest; therefore, the tails are "fatter".
91:, ignored kurtosis risk to its detriment. After four successful years, this hedge fund had to be bailed out by major investment banks in the late 1990s because it understated the kurtosis of many
328:
Premaratne, G., Bera, A. K. (2000). Modeling
Asymmetry and Excess Kurtosis in Stock Return Data. Office of Research Working Paper Number 00-0123, University of Illinois
106:, a French mathematician, extensively researched this issue. He felt that the extensive reliance on the normal distribution for much of the body of modern finance and
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that have a tendency to occasionally be much farther (in terms of number of standard deviations) from the average than is expected for a normal distribution.
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242:"Modelling and forecasting the kurtosis and returns distributions of financial markets: irrational fractional Brownian motion model approach"
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when the latter may in fact have kurtosis much greater than does the normal distribution. Kurtosis risk is commonly referred to as "
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Ignoring kurtosis risk will cause any model to understate the risk of variables with high kurtosis. For instance,
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The (Mis)Behavior of
Markets: A Fractal View of Risk, Ruin, and Reward
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The (Mis)Behavior of
Markets: A Fractal View of Risk, Ruin, and Reward
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Dhesi, Gurjeet; Shakeel, Bilal; Ausloos, Marcel (23 July 2019).
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is a serious flaw of any related models including the
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The Black Swan: The Impact of the Highly
Improbable
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221:"Bailout of Long-Term Capital: A Bad Precedent?"
95:underlying the fund's own trading positions.
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246:Annals of Operations Research
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81:Long-Term Capital Management
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120:capital asset pricing model
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263:10.1007/s10479-019-03305-z
195:"Rashomon in Connecticut"
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155:Holy grail distribution
16:Term in decision theory
99:Research by Mandelbrot
171:Nassim Nicholas Taleb
150:Stochastic volatility
70:independent variables
357:Mathematical finance
229:. December 26, 2008.
93:financial securities
60:risk applies to any
45:, but is applied to
37:that results when a
342:Normal distribution
68:for certain of its
66:normal distribution
43:normal distribution
300:Mandelbrot, Benoit
226:The New York Times
193:(2 October 1998).
160:Taleb distribution
124:William F. Sharpe
108:investment theory
104:Benoit Mandelbrot
39:statistical model
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122:developed by
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310:. New York:
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204:. Retrieved
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47:observations
41:assumes the
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312:Basic Books
347:Investment
336:Categories
293:References
273:2381/45242
206:2008-05-16
118:, and the
85:hedge fund
23:statistics
282:199678533
140:Kurtosis
134:See also
74:fat tail
62:kurtosis
58:Kurtosis
53:Overview
252:(1–2).
33:is the
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278:S2CID
177:Notes
316:ISBN
83:, a
35:risk
25:and
268:hdl
258:doi
250:299
169:by
21:In
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