Meaning of tail risk | Babel Free

Definitions

The probability that the value of something will fall more than three standard deviations (-3σ) below the mean; an extreme risk.

countable, uncountable

Examples

“The advantage of performing a simulation is that different tail risk measures can be computed from the simulated loss distribution.”

“Hence, under tail risk, excess risk-shifting incentives of bank shareholders may exist almost independently of the level of initial or required capital.”

“Given this backdrop and these fears, “tail risk” hedging, or protecting investment portfolios against extreme negative moves in the market, has been a frequent topic of conversation among market participants.”

“Not making this distinction between normal risk and extreme tail risk is often the reason institutions lack clear, highly focused goals and governance policies for the management of tail risk.”

“There is also a growing literature on the empirical regularities of cryptocurrencies. Borri (2019) shows that individual cryptocurrencies are exposed to cryptomarket tail-risks. Makarov and Schoar (2020) find that cryptocurrency markets exhibit periods of potential arbitrage opportunites across exchanges. Griffin and Shams (2020) study Bitcoin price manipulation. Our paper is the first comprehensive analysis of cryptocurrencies through the lens of empirical asset pricing.”

“Because really, if we can’t deal with catastrophic tail risk, then we do not have a legitimate government.”

CEFR level