Handling Extreme Events

Extreme Events and Portfolio Construction [13]

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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 fat-tailed. So these banks were (consciously or unconsciously) biasing their business strategies towards ones that had high kurtosis

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 fat-tailed. So these banks were (consciously or unconsciously) biasing their business strategies towards ones that had high kurtosis

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