"Black Swans" and the Financial Crisis
Post-mortems of the financial crisis typically mention "black swans" as the rare events that were the Achilles heel of financial models, manifesting themselves as "25 standard deviation events occurring several days in a row". Here, we briefly discuss the implications of "black swan" events in asset pricing and risk management. We then show that the "black swans" problem virtually disappears for S&P Index returns when surprises are measured relative to the standard deviation of the conditional S&P distribution. In our illustration, we use the one-day-lagged VIX as an easy-to-understand measure of that conditional S&P standard deviation.
Volume (Year): 15 (2012)
Issue (Month): 02 ()
|Contact details of provider:|| Web page: http://www.worldscinet.com/rpbfmp/rpbfmp.shtml|
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:wsi:rpbfmp:v:15:y:2012:i:02:p:1250008-1-1250008-12. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tai Tone Lim)
If references are entirely missing, you can add them using this form.