Fat Tails and Extreme Events [2]

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Bullet points include: Taking due account of extreme events is a key issue for (many) market professionals. They are a fact of life, can severely disrupt but also provide opportunities for gain. No amount of clever data analysis can circumvent the need for expert judgement and subjective practitioner input. But ignoring mathematical and market insights isn’t the right answer. The limiting case where fat-tailed behaviour is insignificant covers most strands of traditional portfolio construction theory. A 2-for-1 opportunity: cover all main strands of basic mean-variance investing, risk budgeting, etc. as well as refinements needed to handle extreme events

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