Related papers: A Peer-based Model of Fat-tailed Outcomes

I report a new statistical distribution formulated to confront the infamous, long-standing, computational/modeling challenge presented by highly skewed and/or leptokurtic ("fat- or heavy-tailed") data. The distribution is straightforward,…

It is well known that the probability distribution of high-frequency financial returns is characterized by a leptokurtic, heavy-tailed shape. This behavior undermines the typical assumption of Gaussian log-returns behind the standard…

The purpose of this paper is to show that the use of heavy-tailed distributions in Financial problems is theoretically baseless and can lead to significant misunderstandings. The reason for this the authors see in an incorrect…

We propose a random walk model of asset returns where the parameters depend on market stress. Stress is measured by, e.g., the value of an implied volatility index. We show that model parameters including standard deviations and…

It is argued that there is a need for fat-tailed distributions that become thin in the extreme tail. A 3-parameter distribution is introduced that visually resembles the t-distribution and interpolates between the normal distribution and…

On the framework of the Linear Farmer's Model, we approach the indeterminacy of agents' behaviour by associating with each agent an unconditional probability for her to be active at each time step. We show that Pareto tailed returns can…

The aim of this paper is to propose a heterogeneous agent model of stock markets that develop complicated endogenous price fluctuations. We find occurrences of non-stationary chaos, or speculative bubble, are caused by the heterogeneity of…

Financial time series have been investigated to follow fat-tailed distributions. Further, an empirical probability distribution sometimes shows cut-off shapes on its tails. To describe this stylized fact, we incorporate the cut-off effect…

This is an epistemological approach to errors in both inference and risk management, leading to necessary structural properties for the probability distribution. Many mechanisms have been used to show the emergence of fat tails. Here we…

The tail of the distribution of a sum of a random number of independent and identically distributed nonnegative random variables depends on the tails of the number of terms and of the terms themselves. This situation is of interest in the…

Ex ante forecast outcomes should be interpreted as counterfactuals (potential histories), with errors as the spread between outcomes. Reapplying measurements of uncertainty about the estimation errors of the estimation errors of an…

This paper discusses the use of fat-tailed distributions in catastrophe prediction as opposed to the more common use of the Normal Distribution.

We empirically analyze a large sample of firm sales growth expectations. We find that the relationship between forecast errors and lagged revision is non-linear. Forecasters underreact to typical (positive or negative) news about future…

The distribution of returns in financial time series exhibits heavy tails. In empirical studies, it has been found that gaps between the orders in the order book lead to large price shifts and thereby to these heavy tails. We set up an…

We propose a stochastic process driven by the memory effect with novel distributions which include both exponential and leptokurtic heavy-tailed distributions. A class of the distributions is analytically derived from the continuum limit of…

We present a simple model of a stock market where a random communication structure between agents gives rise to a heavy tails in the distribution of stock price variations in the form of an exponentially truncated power-law, similar to…

We propose a transformation capable of altering the tail properties of a distribution, motivated by extreme value theory, which can be used as a layer in a normalizing flow to approximate multivariate heavy tailed distributions. We apply…

This study empirically re-examines fat tails in stock return distributions by applying statistical methods to an extensive dataset taken from the Korean stock market. The tails of the return distributions are shown to be much fatter in…

We introduce a deterministic dealer model which implements most of the empirical laws, such as fat tails in the price change distributions, long term memory of volatility and non-Poissonian intervals. We also clarify the causality between…

The upper tail of a claim size distribution of a property line of business is frequently modelled by Pareto distribution. However, the upper tail does not need to be Pareto distributed, extraordinary shapes are possible. Here, the…