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Fat tails

German: Fat Tails

The tendency of financial markets to produce extreme moves far more often than a normal distribution predicts.

Many risk models assume normally distributed returns. In reality the tails are “fatter”: crash days like 19 October 1987 (Dow −22.6%) should practically never occur under a normal distribution. Nassim Taleb’s term “black swan” describes rare, unpredictable events with enormous impact.