Leptokurtosis: Difference between revisions
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imported>Doug Williamson m (Spacing 22/8/13) |
imported>Doug Williamson (Added links) |
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== See also == | == See also == | ||
* [[Black Scholes option pricing model]] | * [[Black Scholes option pricing model]] | ||
* [[Fat tail]] | |||
* [[Leptokurtic frequency distribution]] | * [[Leptokurtic frequency distribution]] | ||
* [[Lognormal frequency distribution]] | * [[Lognormal frequency distribution]] | ||
* [[Normal frequency distribution]] | * [[Normal frequency distribution]] | ||
* [[Tail]] | |||
* [[Value at risk]] | * [[Value at risk]] | ||
Revision as of 15:09, 17 August 2016
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.
