Extreme Events – Specimen Question A.6.1

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A daily series that you are analysing seems to have a small number of extreme movements that look suspiciously like errors to you.


(a)    To what extent should you exclude such observations when developing a robust portfolio construction algorithm?




(b)   What sorts of circumstances (applying to what sorts of financial series) might lead to extreme movements that are not actually errors?




(c)    What other sorts of observations arising in financial series might be ones that you would question?




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