Statistical Consequences of Fat Tails

This book, the first volume of the Technical Incerto, weaves a narrative around published journal articles.

Statistical Consequences of Fat Tails

Author: Nassim Nicholas Taleb

Publisher:

ISBN: 9781544508054

Page:

View: 405

The book investigates the misapplication of conventional statistical techniques to fat tailed distributions and looks for remedies, when possible. Switching from thin tailed to fat tailed distributions requires more than "changing the color of the dress." Traditional asymptotics deal mainly with either n=1 or n=∞, and the real world is in between, under the "laws of the medium numbers"-which vary widely across specific distributions. Both the law of large numbers and the generalized central limit mechanisms operate in highly idiosyncratic ways outside the standard Gaussian or Levy-Stable basins of convergence. A few examples: - The sample mean is rarely in line with the population mean, with effect on "naïve empiricism," but can be sometimes be estimated via parametric methods. - The "empirical distribution" is rarely empirical. - Parameter uncertainty has compounding effects on statistical metrics. - Dimension reduction (principal components) fails. - Inequality estimators (Gini or quantile contributions) are not additive and produce wrong results. - Many "biases" found in psychology become entirely rational under more sophisticated probability distributions. - Most of the failures of financial economics, econometrics, and behavioral economics can be attributed to using the wrong distributions. This book, the first volume of the Technical Incerto, weaves a narrative around published journal articles.

Control Performance Assessment Theoretical Analyses and Industrial Practice

J. 16(7), 1998–2003 (2016) Taleb, N.N.: Real-world Statistical Consequences of
Fat Tails: Papers and Commentary. STEM Academic Press, Technical Incerto
Collection (2018) Verboven, S., Hubert, M.: LIBRA: a Matlab library for robust ...

Control Performance Assessment  Theoretical Analyses and Industrial Practice

Author: Paweł D. Domański

Publisher: Springer Nature

ISBN: 3030235939

Page: 367

View: 660

This book presents a comprehensive review of currently available Control Performance Assessment methods. It covers a broad range of classical and modern methods, with a main focus on assessment practice, and is intended to help practitioners learn and properly perform control assessment in the industrial reality. Further, it offers an educational guide for control engineers, who are currently in high demand in the industry. The book consists of three main parts. Firstly, a comprehensive review of available approaches is presented and discussed. The classical canon methods are extended with a discussion of nonlinear and complex alternative measures using non-Gaussian statistics, persistence and fractional calculations. Secondly, the methods’ applicability aspects are visualized with the aid of computer simulations, covering the most popular control philosophies used in the process industry. Lastly, a critical review of the methods discussed, on the basis of real-world industrial examples, rounds out the coverage.

Unifying Themes in Complex Systems IX

The Statistical Consequences of Fat Tails, vol. 1 (2018). www.
fooledbyrandomness.com Einmahl, J., Einmahl, J., de Haan, L.: Limits to Human
Life Span Through Extreme Value Theory. Center Discussion Paper Series No.
2017-051. CentER ...

Unifying Themes in Complex Systems IX

Author: Alfredo J. Morales

Publisher: Springer

ISBN: 3319966618

Page: 506

View: 499

Unifying Themes in Complex Systems is a well-established series of carefully edited conference proceedings that serve to document and archive the progress made regarding cross-fertilization in this field. The International Conference on Complex Systems (ICCS) creates a unique atmosphere for scientists from all fields, engineers, physicians, executives, and a host of other professionals, allowing them to explore common themes and applications of complex systems science. With this new volume, Unifying Themes in Complex Systems continues to establish common ground between the wide-ranging domains of complex systems science.

Nonlinear Dynamics and Control

Taleb, N.N.: Real-World Statistical Consequences of Fat Tails: Papers and
Commentary, Technical Incerto Collection. STEM Academic, Rockville (2018)
Impact of the Controller Algorithm on the Effect of Motor 156 P. D. Doma ́nski and
M.

Nonlinear Dynamics and Control

Author: Walter Lacarbonara

Publisher: Springer Nature

ISBN: 3030347478

Page: 349

View: 153

This second of three volumes from the inaugural NODYCON, held at the University of Rome, in February of 2019, presents papers devoted to Nonlinear Dynamics and Control. The collection features both well-established streams of research as well as novel areas and emerging fields of investigation. Topics in Volume II include influence of nonlinearities on vibration control systems; passive, semi-active, active control of structures and systems; synchronization; robotics and human-machine interaction; network dynamics control (multi-agent systems, leader-follower dynamics, swarm dynamics, biological networks dynamics); and fractional-order control.

Changing Climate Changing Economy

SOME IMPLICATIONS OF ' FAT - TAILED LOGIC By ' fat - tailed logic ' I mean a
combination of fat tails and temperaturesensitive ... Even if it were true that this
logic represents a valid economic - statistical , precautionary - like principle that ,
at least theoretically , might ... and the warming consequences , is the possibility
of learning and mid - course corrections a plausible counterweight to this fat -
tailed ...

Changing Climate  Changing Economy

Author: Jean-Philippe Touffut

Publisher: Edward Elgar Pub

ISBN:

Page: 171

View: 471

This volume brings a variety of viewpoints on appropriate policy to meet the threats brought on by man-made climate change. Not only economic theory but broader political and methodological perspectives are brought to bear by an authoritive set of authors.

Climate Shock

That looks like the manifestation of a fat tail, if there ever was one (even though
strictly speaking we don't even assume that property in our calculations; our tail is
“heavy,” not quite “fat” in statistical terms). At 700 ppm, the median temperature ...

Climate Shock

Author: Gernot Wagner

Publisher: Princeton University Press

ISBN: 0691171327

Page: 272

View: 777

If you had a 10 percent chance of having a fatal car accident, you'd take necessary precautions. If your finances had a 10 percent chance of suffering a severe loss, you'd reevaluate your assets. So if we know the world is warming and there's a 10 percent chance this might eventually lead to a catastrophe beyond anything we could imagine, why aren't we doing more about climate change right now? We insure our lives against an uncertain future--why not our planet? In Climate Shock, Gernot Wagner and Martin Weitzman explore in lively, clear terms the likely repercussions of a hotter planet, drawing on and expanding from work previously unavailable to general audiences. They show that the longer we wait to act, the more likely an extreme event will happen. A city might go underwater. A rogue nation might shoot particles into the Earth's atmosphere, geoengineering cooler temperatures. Zeroing in on the unknown extreme risks that may yet dwarf all else, the authors look at how economic forces that make sensible climate policies difficult to enact, make radical would-be fixes like geoengineering all the more probable. What we know about climate change is alarming enough. What we don't know about the extreme risks could be far more dangerous. Wagner and Weitzman help readers understand that we need to think about climate change in the same way that we think about insurance--as a risk management problem, only here on a global scale. With a new preface addressing recent developments Wagner and Weitzman demonstrate that climate change can and should be dealt with--and what could happen if we don't do so--tackling the defining environmental and public policy issue of our time.

Finance and Economics Discussion Series

... value at risk " ) , the difference between .02 and .01 can be large if the
distribution is assumed to have " fat tails . ... The models do not address the
statistical consequences of time aggregating asset returns needed to estimate
longer ...

Finance and Economics Discussion Series

Author:

Publisher:

ISBN:

Page:

View: 454

Journal of the American Statistical Association

... model persists, despite the potential — and now realized — enormous losses
and the ensuing consequences for society at large. ... Finally, the fourth reason
they give against the stable distribution is that alternative statistical mechanisms
have been proposed that are ... Chapter 5 discusses various fat-tailed and
asymmetric distributions, which are better suited for capturing the skewness and
kurtosis of ...

Journal of the American Statistical Association

Author: American Statistical Association

Publisher:

ISBN:

Page:

View: 244

Statistical Methods and Non standard Finance

Indeed, the econometric consequences of uncertainty in financial models usually
follow directly from the economics, ... on the basic properties of asset returns such
as return predictability, fat tails, serial correlation, and time- varying volatilities.

Statistical Methods and Non standard Finance

Author: Andrew Wen-Chuan Lo

Publisher: Edward Elgar Pub

ISBN: 9781847202666

Page: 618

View: 619

This major collection presents a careful selection of the most important published articles in the field of financial econometrics. Starting with a review of the philosophical background, the collection covers such topics as the random walk hypothesis, long-memory processes, asset pricing, arbitrage pricing theory, variance bounds tests, term structure models, market microstructure, Bayesian methods and other statistical tools. Andrew Lo - one of the world's leading financial economists - has written an authoritative introduction, which offers a comprehensive overview of the subject and complements his selection.

Risk

Mutual self - awareness and fat tails Mutual self - awareness among market
participants is an important distinction between physical and social systems . ...
when I taught basic statistics , the one concept I tried to be sure students would
remember well into the future was the central ... The consequences are fairly
obvious .

Risk

Author:

Publisher:

ISBN:

Page:

View: 197

Option Value and the Timing of Environmental Policy

Chapter 5 features some statistical tools for analyzing time series . ... and
compute some statistics to investigate the nature of the “ fat - tails ” observed in
the distribution of the increments of the ... to one of these time series , and discuss
the consequences of using these models on the preservation of old - growth
forest .

Option Value and the Timing of Environmental Policy

Author: Jean-Daniel Maurice Saphores

Publisher:

ISBN:

Page: 396

View: 695

Limitations in current numerical methods, statistical tests, and most importantly, available data, may, however, restrict the wide applicability of this approach.

Financial Stability Review

863-883 ; C. Calomiris and J. Mason ( 2003 ) , “ Consequences of U.S. Bank
Distress During of empirical research in this ... Why is EVT particularly suitable for
the analysis Heavy or fat tailed distributions refer to statistical distributions in
which ...

Financial Stability Review

Author:

Publisher:

ISBN:

Page:

View: 246

Disordered and Complex Systems

London, United Kingdom, 10-14 July 2000 Professor of Statistical Mechanics
Department of Mathematics P Sollich, Peter Sollich, A.C.C. Coolen, L.P.
Hughston, R.F. Streater ... time then shortterm traders would take advantage of
this dependence and as a consequence this dependence would disappear . ...
Financial prices are not continuous and financial daily returns have fat tails and
large kurtosis .

Disordered and Complex Systems

Author: Professor of Statistical Mechanics Department of Mathematics P Sollich

Publisher: American Institute of Physics

ISBN:

Page: 332

View: 625

Casting a wide meaning for the terms disorder and complexity in order to gather researchers from many disciplines, the meeting covered glassy systems and neural networks, information geometry, quantum dynamics and quantum chaos, reaction-diffusion equations, and new directions in mathematical finance. The 50 papers include such discussions as the glassy dynamics of a two-dimensional non- disordered spin model, dualistic properties of the manifold of quantum states, applying the statistical mechanics of random matrices to disordered metals, steady states and long-time asymptotics of solutions of Steater's models, and scaling and multiscaling in financial markets. There is no subject index. c. Book News Inc.

EMU and Portfolio Diversification Opportunities

Based on the Jarque - Bera statistic ( which is a chi square with two degrees of
freedom ) , the normality assumption is rejected for all 11 countries and both
types of investors . The normality is rejected both because of fat tails and
asymmetry as indicated by the kurtosis and skewness ... The main question here
is to figure out the likely consequences of this non - normality on the battery of
tests that are ...

EMU and Portfolio Diversification Opportunities

Author: Kpate Adjaoute

Publisher:

ISBN:

Page: 37

View: 640

Future Climate Change Research and Observations

... and when the " fat tails " of the probability distribution , that include outcomes
with potentially high consequences for society , are ... Uncertainties arise from
factors such as linguistic imprecision , statistical variation , measurement error ...

Future Climate Change Research and Observations

Author:

Publisher:

ISBN:

Page: 57

View: 331

BNA Pension Benefits Reporter

42 " 136 a position of influence , not just executives and traders , but also the
regulators , had no idea what risks were actually being ... used widely by banks
and financial institutions to estimate the probability of portfolio losses based on
the statistical analysis of historical ... for an in depth treatment of what has
become known as “ fat - tailed risks , ” referring to the tail of a normal probability
distribution ...

BNA Pension   Benefits Reporter

Author:

Publisher:

ISBN:

Page:

View: 759

Future Perspectives in Risk Models and Finance

Tail. Probabilities. The literature in risk, insurance, and contracts has amply dealt
with the notion of information asymmetry (see ... Stiglitz 1988), but not with the
consequences of deeper information opacity (in spite of getting close, as in
Hölmstrom 1979), by which tail ... We define a fat tailed domain as follows: a
large share of the statistical properties come from the extremum; for a time series
involving n ...

Future Perspectives in Risk Models and Finance

Author: Alain Bensoussan

Publisher: Springer

ISBN: 3319075241

Page: 315

View: 925

This book provides a perspective on a number of approaches to financial modelling and risk management. It examines both theoretical and practical issues. Theoretically, financial risks models are models of a real and a financial “uncertainty”, based on both common and private information and economic theories defining the rules that financial markets comply to. Financial models are thus challenged by their definitions and by a changing financial system fueled by globalization, technology growth, complexity, regulation and the many factors that contribute to rendering financial processes to be continuously questioned and re-assessed. The underlying mathematical foundations of financial risks models provide future guidelines for risk modeling. The book’s chapters provide selective insights and developments that can contribute to better understand the complexity of financial modelling and its ability to bridge financial theories and their practice. Future Perspectives in Risk Models and Finance begins with an extensive outline by Alain Bensoussan et al. of GLM estimation techniques combined with proofs of fundamental results. Applications to static and dynamic models provide a unified approach to the estimation of nonlinear risk models. A second section is concerned with the definition of risks and their management. In particular, Guegan and Hassani review a number of risk models definition emphasizing the importance of bi-modal distributions for financial regulation. An additional chapter provides a review of stress testing and their implications. Nassim Taleb and Sandis provide an anti-fragility approach based on “skin in the game”. To conclude, Raphael Douady discusses the noncyclical CAR (Capital Adequacy Rule) and their effects of aversion of systemic risks. A third section emphasizes analytic financial modelling approaches and techniques. Tapiero and Vallois provide an overview of mathematical systems and their use in financial modeling. These systems span the fundamental Arrow-Debreu framework underlying financial models of complete markets and subsequently, mathematical systems departing from this framework but yet generalizing their approach to dynamic financial models. Explicitly, models based on fractional calculus, on persistence (short memory) and on entropy-based non-extensiveness. Applications of these models are used to define a modeling approach to incomplete financial models and their potential use as a “measure of incompleteness”. Subsequently Bianchi and Pianese provide an extensive overview of multi-fractional models and their important applications to Asset price modeling. Finally, Tapiero and Jinquyi consider the binomial pricing model by discussing the effects of memory on the pricing of asset prices.

The Spectator

For the first three days at least after birth , the human infant , in fat about the heart
is increased in quantity , and there is a ... his talented pupils the chapter , if fed
upon the choicest of fat or milky diet , or dosed of Nature ; and the consequences
are ... circumstances . stitution which the loss of the tail must occasion ; but by
possessing such a And in arresting emaciation ... The food of the a cure ,
consumption , on statistical evidence , is curable ; if not , the matter horse is
deficient in carbon ...

The Spectator

Author:

Publisher:

ISBN:

Page:

View: 107

Punch

--Because they hear with the Fat Cattle Show . When country gentlemen have
had ... In getting in or out , the rubs are about 100 to 1 in favour of your coat - tail
taking a proof impression of the wheel . 4. If two of you get in , the vebicle is su
small ...

Punch

Author: Mark Lemon

Publisher:

ISBN:

Page:

View: 121