A critique of The Black Swan

Re:A critique of The Black Swan by yters on Monday February 09, 2009 @07:04PM (#474435)

What other models can they use, though? Every other distribution assumes even more about the problem domain, and would thus correlate even worse with black swans. Sounds kind of like a no free lunch theorem for finance.

Anyways, do you know if anyone is trying to come up with something better?

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Re:A critique of The Black Swan by thomaspaine on Monday February 09, 2009 @11:23PM (#474688)

There are other types of distributions which fit black swan type data better, such as power-law distributions, Gumbel distribution, etc. I don't know if research in extreme value theory is still a hot topic, but it tries to address these problems. Here is a paper on risk management and extreme value theory: http://tinyurl.com/aa7t6m

Here is a nice paper on risk measures, and points out some of the problems with VaR: http://tinyurl.com/ar3336

My apologies if you're unable to grok the contents of these papers...they're both a little technical but I can't think of anything off the top of my head that's more accessible.

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