tail risk

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