Category Archives: Pdf

Friends, the new project: a linear TEXTBOOK on risk and antifragility.

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Friends, the new project: a linear TEXTBOOK on risk and antifragility. I am putting all the relevant technical papers in linear textbook form. To bust current econometrics and similar frauds, and suggest replacement I need to put it in a complete technical textbook-style format targeted at the new generation of students in statistics econometrics, risk, and social science.The document will be freely available electronically. I think it will come out at the same time as the U.K. AF paperback in June.Will post chapters here.http://www.fooledbyrandomness.com/textbook.pdf

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No, Small Probabilities are Not ‘Attractive to Sell’: A Comment by Nassim Taleb :: SSRN

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No, Small Probabilities are Not ‘Attractive to Sell’: A Comment (revised)
Nassim Nicholas Taleb
NYU-Poly
January 5, 2013
Financial Analysts Journal, Forthcoming
Abstract: Owing to the convexity of the payoff of out-of-the money options, an extremely small probability of a large deviation unseen in past data justifies rationally buying them, or at least justifies excessive caution in not being exposed to them, particularly those options that are extremely nonlinear in response to market movement or changes in implied volatility. One needs, for instance, a minimum of 2000 years of stock market data to assert that some tail options are “expensive.” The paper presents errors in Ilmanen 2012, which provides an exhaustive list of all arguments in favor of selling insurance on small probability events. The paper goes beyond Ilmanen 2012 and suggests an approach to analyze the payoff and risks of options based on the nonlinearities in the tails.
Number of Pages in PDF File: 6

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