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Views on non-Normal markets [5]

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Bullet points include: Typical academic theory revolves around Normality (law of large numbers, mean-variance optimisation etc.), but doesn’t match actual market behaviour. Either for instruments intrinsically expected to exhibit strongly skewed behaviour (e.g. high grade bonds, options). Or for instruments less obviously intrinsically skewed, e.g. equities. Extreme events can materially disrupt (or materially benefit) portfolio progress. Natural focus for risk managers – within both VaR-style computations and stress tests. Also important for portfolio managers – failure to consider them properly will lead to inappropriate portfolio construction

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