Fri, May 29, 2009 - Page 9 News List

Predicting the unpredictable to assess the risk of a cataclysm

Analyses incorporating a ‘fat-tailed’ expected tail loss predicted last year’s market shock while other analysts were blissfully unaware, a statistician claims

By Jane Baird  /  REUTERS , LONDON

Racheva-Iotova said investors will still need to exercise judgment.

“Even with the best output, the model must be used properly in the decision-making process,” she said.

And the model needs data that give as full a risk picture as possible.

“The problem of data-entry implementation should not be underestimated,” Racheva-Iotova said.

Where would you put the chance of market cataclysm being sparked by human error in data entry? The tail thickens.

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