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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?

 

Answer/Hints

 

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

 

Answer/Hints

 

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

 

Answer/Hints

 


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