This article may rely excessively on sources too closely associated with the subject, potentially preventing the article from being verifiable and neutral. Please help improve it by replacing them with more appropriate citations to reliable, independent, third-party sources.(November 2015) (Learn how and when to remove this message)
Taleb and Holy Grail Distributions
In economics and finance, a Taleb distribution is the statistical profile of an investment which normally provides a payoff of small positive returns, while carrying a small but significant risk of catastrophic losses. The term was coined by journalist Martin Wolf and economist John Kay to describe investments with a "high probability of a modest gain and a low probability of huge losses in any period."[1]
The concept is named after Nassim Nicholas Taleb, based on ideas outlined in his book Fooled by Randomness.
According to Taleb in Silent Risk, the term should be called "payoff" to reflect the importance of the payoff function of the underlying probability distribution, rather than the distribution itself.[2] The term is meant to refer to an investment returns profile in which there is a high probability of a small gain, and a small probability of a very large loss, which more than outweighs the gains. In these situations the expected value is very much less than zero, but this fact is camouflaged by the appearance of low risk and steady returns. It is a combination of kurtosis risk and skewness risk: overall returns are dominated by extreme events (kurtosis), which are to the downside (skew). Such kind of distributions have been studied in economic time series related to business cycles.[3]
More detailed and formal discussion of the bets on small probability events is in the academic essay by Taleb, called "Why Did the Crisis of 2008 Happen?" and in the 2004 paper in the Journal of Behavioral Finance called "Why Do We Prefer Asymmetric Payoffs?" in which he writes "agents risking other people’s capital would have the incentive to camouflage the properties by showing a steady income. Intuitively, hedge funds are paid on an annual basis while disasters happen every four or five years, for example. The fund manager does not repay his incentive fee."[4][5]
^Martin Wolf (18 March 2008). "Why today's hedge fund industry may not survive". Retrieved 25 March 2017.
^Nassim Taleb (2015). "Silent Risk Section 16.1 Payoff Skewness and Lack of Skin-in-the-Game". p. 295. Retrieved 25 March 2017.
^Orlando, Giuseppe; Zimatore, Giovanna (August 2020). "Business cycle modeling between financial crises and black swans: Ornstein–Uhlenbeck stochastic process vs Kaldor deterministic chaotic model". Chaos: An Interdisciplinary Journal of Nonlinear Science. 30 (8): 083129. Bibcode:2020Chaos..30h3129O. doi:10.1063/5.0015916. PMID 32872798.
^Nicholas Taleb, Nassim (2004-03-01). "Bleed or Blowup? Why Do We Prefer Asymmetric Payoffs?". The Journal of Behavioral Finance. 5: 2–7. doi:10.1207/s15427579jpfm0501_1. S2CID 17003813.
^"Draft version of "Bleed or Blowup?" paper" (PDF). fooledbyrandomness.com. Retrieved 2018-05-23.
and 24 Related for: Taleb distribution information
In economics and finance, a Talebdistribution is the statistical profile of an investment which normally provides a payoff of small positive returns,...
Nassim Nicholas Taleb (/ˈtɑːləb/; alternatively Nessim or Nissim; born 12 September 1960) is a Lebanese-American essayist, mathematical statistician,...
Taleb critiques the widespread use of the normal distribution model employed in financial engineering, calling it a Great Intellectual Fraud. Taleb elaborates...
between a Holy Grail distribution and investment returns that are generated from an inverted Talebdistribution, a “minus-Taleb” distribution. The return series...
Taleb may refer to: Loay Taleb (born 1975), Syrian footballer Nassim Nicholas Taleb (born 1960), Lebanese-American writer and statistician Nordine Taleb...
of the assumption of normal distribution occurring in financial models has also been criticized by Nassim Nicholas Taleb in his works. Measurement errors...
increased perception of risk for future outlier event(s). Skewness risk Talebdistribution Volatility skew Chicago Board Options Exchange. "Introduction to CBOE...
subsequently been theorized by mathematicians and statisticians. Nassim Nicholas Taleb has expressed the Lindy effect in terms of "distance from an absorbing barrier"...
Macroprudential policy Modern portfolio theory Monetary economics Moral hazard Primitive accumulation of capital Risk modeling Systemic risk Talebdistribution...
than the "good" case. Skewness Kurtosis risk Talebdistribution Stochastic volatility Holy grail distribution Mandelbrot, Benoit B., and Hudson, Richard...
which is also known as a Tail event. Risk measure Tail risk parity Talebdistribution Value at risk Hayes, Adam. "Tail Risk in Investments". Investopedia...
proposed by Nassim Nicholas Taleb in his book The Black Swan (2007), is "the misuse of games to model real-life situations". Taleb explains the fallacy as...
Modern portfolio theory Capital asset pricing model Risk modeling Talebdistribution "Figure 1: Systemic risk cube with three forms of risks". Shiller...
irrelevant, and, at worst, dangerously misleading; see Black swan theory, Talebdistribution. A topic of general interest has thus been financial crises, and the...
volatility Holy grail distributionTalebdistribution The Black Swan: The Impact of the Highly Improbable by Nassim Nicholas Taleb Krugman, Paul (2 October...
Role of Chance in Life and in the Markets is a book by Nassim Nicholas Taleb that deals with the fallibility of human knowledge. It was first published...
display of info Taguchi loss function Taguchi methods Tajima's D Talebdistribution Tampering (quality control) Taylor expansions for the moments of functions...
Macroprudential policy Modern portfolio theory Moral hazard Risk modeling TalebDistribution Glass–Steagall Act Monetary economics Internal contradictions of capital...
results based on the assumption of a well-defined probability distribution. Nassim Taleb has labeled this assumption, "charlatanism". On the other hand...
Benoit Mandelbrot & Nassim Nicholas Taleb. Fortune, July 11, 2005. "Million-dollar Murray": power-law distributions in homelessness and other social problems;...
science of self-organized criticality, Springer, p. 89, ISBN 0-387-94791-4 Taleb, Nassim (2007), The Black Swan, pp. 229–252, 274–285 David Litten, Project...
field notably by Paul Wilmott, and by Nassim Nicholas Taleb, in his book The Black Swan. Taleb claims that the prices of financial assets cannot be characterized...
Archived from the original (PDF) on 16 June 2015. Retrieved 8 April 2015. Taleb Ibrahimi, Khaoula (1 June 2006). "L'Algérie : coexistence et concurrence...
complete information, and some others. W. Edwards Deming and Nassim Nicholas Taleb argue that empirical reality, not nice mathematical properties, should be...
Global Information
