The Truth about Fat Tails & Black Swans

Bénédicte Godet

According to the normal distribution, each of the market crises observed over the past decade should only have occurred once every 1,000 years or so. Clearly, the normal distribution completely misses the likelihood of market crisis and therefore provides risk estimates that dangerously underestimate true risk.

This briefing explains how risk measures can introduce fat tails and black swans.

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