Financial Risk and Heavy Tails
Brendan O. Bradley bbradley@bu.edu; Murad S. Taqqu murad@bu.edu http://math.bu.edu/people/murad Department of Mathematics and Statistics, Boston University, 111 Cummington Street, Boston, MA 02215, USA
Abstract
It is of great importance for those in charge of managing risk to understand how financial asset returns are distributed. Practitioners often assume for convenience that the distribu¬tion is normal. Since the 1960s, however, empirical evidence has led many to reject this assumption in favor of various heavy-tailed alternatives. In a heavy-tailed distribution the likelihood that one encounters significant deviations from the mean is much greater than in the case of the normal distribution. It is now ...
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