Related papers: A Peer-based Model of Fat-tailed Outcomes
Reliable calculations of financial risk require that the fat-tailed nature of prices changes is included in risk measures. To this end, a non-Gaussian approach to financial risk management is presented, modeling the power-law tails of the…
We assume the market price to diffuse in a hierarchical comb of barriers, the heights of which represent the importance of new information entering the market. We find fat tails with the desired exponent for the price change distribution,…
We introduce a statistical model for operational losses based on heavy-tailed distributions and bipartite graphs, which captures the event type and business line structure of operational risk data. The model explicitly takes into account…
For the past two decades investors have observed long memory and highly correlated behavior of asset classes that does not fit into the framework of Modern Portfolio Theory. Custom correlation and standard deviation estimators consider…
Different questions related with analysis of extreme values and outliers arise frequently in practice. To exclude extremal observations and outliers is not a good decision because they contain important information about the observed…
Heavy tailed distributions present a tough setting for inference. They are also common in industrial applications, particularly with Internet transaction datasets, and machine learners often analyze such data without considering the biases…
Using a family of modified Weibull distributions, encompassing both sub-exponentials and super-exponentials, to parameterize the marginal distributions of asset returns and their multivariate generalizations with Gaussian copulas, we offer…
In complex systems such as turbulent flows and financial markets, the dynamics in long and short time-lags, signaled by Gaussian and fat-tailed statistics, respectively, calls for a unified description. To address this issue we analyze a…
This paper develops a unified framework that integrates behavioral distortions into rational portfolio optimization by extracting implied probability weighting functions (PWFs) from optimal portfolios modeled under Gaussian and…
We introduce a new statistical tool (the TP-statistic and TE-statistic) designed specifically to compare the behavior of the sample tail of distributions with power-law and exponential tails as a function of the lower threshold u. One…
We introduce a minimal Agent Based Model with two classes of agents, fundamentalists (stabilizing) and chartists (destabilizing) and we focus on the essential features which can generate the stylized facts. This leads to a detailed…
In this article we show the relationship between the Pareto distribution and the gamma distribution. This shows that the second one, appropriately extended, explains some anomalies that arise in the practical use of extreme value theory.…
In many areas of interest, modern risk assessment requires estimation of the extremal behaviour of sums of random variables. We derive the first order upper-tail behaviour of the weighted sum of bivariate random variables under weak…
We present an overview of possible reasons for the appearance of heavy-tailed distributions in applications to the natural sciences. These distributions include the laws of Pareto, Lotka, and some new ones. The reasons are illustrated using…
Reliable calculations of financial risk require that the fat-tailed nature of prices changes is included in risk measures. To this end, a non-Gaussian approach to financial risk management is presented, modeling the power-law tails of the…
Heavy-tailed phenomena appear across diverse domains --from wealth and firm sizes in economics to network traffic, biological systems, and physical processes-- characterized by the disproportionate influence of extreme values. These…
We analyze systems of agents sharing light-tailed risky claims issued by different financial objects. Assuming exponentially distributed claims, we obtain that both agents' and system's losses follow generalized exponential mixture…
This paper analyzes the equilibrium distribution of wealth in an economy where firms' productivities are subject to idiosyncratic shocks, returns on factors are determined in competitive markets, dynasties have linear consumption functions…
We describe an efficient incentive mechanism for P2P systems that generates a wide diversity of content offerings while responding adaptively to customer demand. Files are served and paid for through a parimutuel market similar to that…
We model systemic risk using a common factor that accounts for market-wide shocks and a tail dependence factor that accounts for linkages among extreme stock returns. Specifically, our theoretical model allows for firm-specific impacts of…