How unlucky is 25-Sigma?
AbstractThis article examines the likelihood of high-sigma loss events, paying particular attention to the so-called 25-sigma events which a number of financial institutions have allegedly experienced in the recent financial turmoil. The authors discuss several well-known cases and their media coverage, and then examine the probabilities of such events and the periods of time that would elapse before one would expect to witness them. They find that 25-sigma events are far less likely to occur than recent discussions would suggest--so much so, in fact, that they are literally incredible.
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Bibliographic InfoPaper provided by University College Dublin in its series Open Access publications from University College Dublin with number urn:hdl:10197/1625.
Date of creation: 2008
Date of revision:
Publication status: Published in Journal of Portfolio Management (2008) v.34, p.76-80
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Web page: http://www.ucd.ie
Distribution (Probability theory); Financial crises--Econometric models; Global Financial Crisis; 2008-2009;
Other versions of this item:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
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