Credit Suisse: Making Fat Tails Work for You
|Apr 25th, 2012 | Filed under: Alpha Strategies, Derivatives, Today's Post | By: cfaille||
Both theory and empirical evidence on the success of certain “modified risk techniques” show that they can do what they are designed to do. They can accommodate fat tail events and diversify a portfolio’s sources of return.
That is the gist of a Credit Suisse white paper prepared by Yogi Thambiah and Nicolo’ Foscari.
The paper is entitled, “New Normal Investing: Is the (Fat) Tail Wagging Your Portfolio?” a title that neatly encapsulates two bits of finance jargon. First, there is the phrase “new normal,” coined by PIMCO in 2009, to express the view that investors and managers shouldn’t wait for any return of the good-old-days of the boom in real estate and its derivatives. They should, rather, accustom themselves to the world that the bust-ups of 2007-08 have created.
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Christopher Faille is a Jamesian pragmatist. William James has taught him, for example, that "you can say of a line that it runs east, or you can say that it runs west, and the line per se accepts both descriptions without rebelling at the inconsistency."