Tag: Portfolio Theory
In complete markets, every possible outcome has a corresponding financial instrument, facilitating total risk mitigation. This environment is free of arbitrage and optimally processes market information. Nonetheless, achieving perfect market completeness is often elusive in practice.
Fat Tail Events denote uncommon, large deviations from averages, often linked with significant financial shifts. These are characterized by a greater likelihood of extreme occurrences than typical predictions suggest. Their profound impact, as witnessed in events like the 2008 financial crisis, underscores the importance of understanding and managing such phenomena.