Risk glossary

Also known as heavy tails, fat tails describe the greater-than-expected probabilities of extreme values. Historically, financiers have used the Gaussian distribution to model the distribution of probabilities for the values of a quantity, such as price returns. If in a Gaussian distribution there is, say, a 1% chance of a quantity taking values greater than some extreme value, this probability will be higher in a fat-tailed distribution.

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