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Tail Dependence

Tail Dependence

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Tail Dependence

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  1. Tail Dependence Tail Dependence “When sorrows come, they come…in battalions.” King Claudius, Hamlet Prince of Denmark, Act 4 Scene 5 Cooke and Kousky nsf# 0960865 Micro Correlations Fat Tails http://www.rff.org/Events/Pages/Introduction-Climate-Change-Extreme-Events.aspx

  2. Here’s what killed your 401(k) Gaussian Copula

  3. Tail dependence: Correlations are in the High (or low) values

  4. Two loss variablesindependent dependent (0.1) 401K killer

  5. Copulaindependent dependent (0.1) 401K killer

  6. Sums of 40 loss variables independent dependent 401K killer

  7. Copula: sums of 40independent 401K killer

  8. Sums of 40401K killer Tail dependent

  9. Copula: sums of 40401K killer tail dependent

  10. Copula: sums of 40401K killer tail dependent

  11. Copula: sums of 40401K killer tail dependent

  12. Tail dependence Bad things happen together “ fatally flawed way to assess risk”

  13. Tail Dependence: Ignore it at your 401K’s peril Micro Correlations Fat Tails The Unholy Trinity: http://www.rff.org/Publications/Pages/PublicationDetails.aspx?PublicationID=20949