Fat Tails and Extreme Events [23]

Go to: Summary | Previous | Next   
Bullet points include: Banks that failed during 2007-09 Credit Crisis were disproportionately biased towards strategies that depended on continuing favourable liquidity conditions. Liquidity risk is highly skewed, i.e. highly fat-tailed. I.e. these banks were (consciously or unconsciously) biasing their business strategies towards ones that had fat-tailed characteristics. No wonder traditional risk models appear to have underestimated potential magnitudes of adverse outcomes!

Contents | Prev | Next | Library

Desktop view | Switch to Mobile