Leptokurtosis: Difference between revisions
From ACT Wiki
Jump to navigationJump to search
imported>Administrator (CSV import) |
imported>Doug Williamson m (Spacing 22/8/13) |
||
| Line 1: | Line 1: | ||
Leptokurtosis is observed in many financial distributions | Leptokurtosis is observed in many financial distributions. | ||
Importantly there is a fatter downside tail (‘left tail’) in the observed data. In other words the observed frequency of large negative returns (or results) is greater than predicted - for example - by the lognormal model of the distribution assumed in the Black Scholes option pricing model. | It means a more ‘pointy-headed’ and ‘fat tailed’ observed distribution, compared with the distributions predicted by the normal and lognormal models. | ||
Importantly there is a fatter downside tail (‘left tail’) in the observed data. | |||
In other words the observed frequency of large negative returns (or results) is greater than predicted - for example - by the lognormal model of the distribution assumed in the Black Scholes option pricing model. | |||
Because of leptokurtosis, Value at Risk models which use a normal frequency distribution will understate the Value at Risk. | Because of leptokurtosis, Value at Risk models which use a normal frequency distribution will understate the Value at Risk. | ||
== See also == | == See also == | ||
| Line 11: | Line 16: | ||
* [[Normal frequency distribution]] | * [[Normal frequency distribution]] | ||
* [[Value at risk]] | * [[Value at risk]] | ||
Revision as of 11:36, 22 August 2013
Leptokurtosis is observed in many financial distributions.
It means a more ‘pointy-headed’ and ‘fat tailed’ observed distribution, compared with the distributions predicted by the normal and lognormal models.
Importantly there is a fatter downside tail (‘left tail’) in the observed data.
In other words the observed frequency of large negative returns (or results) is greater than predicted - for example - by the lognormal model of the distribution assumed in the Black Scholes option pricing model.
Because of leptokurtosis, Value at Risk models which use a normal frequency distribution will understate the Value at Risk.
