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Where Do Thin Tails Come From?


  • Nassim Nicholas Taleb


The literature of heavy tails (typically) starts with a random walk and finds mechanisms that lead to fat tails under aggregation. We follow the inverse route and show how starting with fat tails we get to thin-tails when deriving the probability distribution of the response to a random variable. We introduce a general dose-response curve and argue that the left and right-boundedness or saturation of the response in natural things leads to thin-tails, even when the "underlying" random variable at the source of the exposure is fat-tailed.

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  • Nassim Nicholas Taleb, 2013. "Where Do Thin Tails Come From?," Papers 1307.6695,, revised Jul 2013.
  • Handle: RePEc:arx:papers:1307.6695

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    References listed on IDEAS

    1. Gary Gorton, 2009. "The Subprime Panic," European Financial Management, European Financial Management Association, vol. 15(1), pages 10-46.
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    5. Ewerhart, Christian & Tapking, Jens, 2008. "Repo markets, counterparty risk and the 2007/2008 liquidity crisis," Working Paper Series 909, European Central Bank.
    6. P. Collin-Dufresne & R. Goldstein & J. Hugonnier, 2004. "A General Formula for Valuing Defaultable Securities," Econometrica, Econometric Society, vol. 72(5), pages 1377-1407, September.
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