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Risk 07: modern portfolio theory should be ditched, says Taleb
Banks should abandon modern portfolio theory as it does not capture unexpected rare events, according to Nassim Nicholas Taleb, author of the risk management book The Black Swan .
Taleb argued that models based on bell-curve assumptions, such as the Gaussian distribution model, fail to capture reality. The possibility of unexpected rare events - black swans - is not factored in, while these events occur much more frequently than is thought. "We have to abandon modern portfolio
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