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Tail Dependence Fat Tails Micro Correlations Tail Dependence “When sorrows come, they come…in battalions.” King Claudius, Hamlet Prince of Denmark, Act.

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Presentation on theme: "Tail Dependence Fat Tails Micro Correlations Tail Dependence “When sorrows come, they come…in battalions.” King Claudius, Hamlet Prince of Denmark, Act."— Presentation transcript:

1 Tail Dependence Fat Tails Micro Correlations Tail Dependence “When sorrows come, they come…in battalions.” King Claudius, Hamlet Prince of Denmark, Act 4 Scene 5 Cooke and Kousky nsf# n-Climate-Change-Extreme-Events.aspx

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3 Here’s what killed your 401(k)

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

5 Two loss variables independent dependent (0.1) 401K killer

6 Copula independent dependent (0.1) 401K killer

7 Sums of 40 loss variables independent dependent 401K killer

8 Copula: sums of 40 independent 401K killer

9 Sums of K killer Tail dependent

10 Copula: sums of K killer tail dependent

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

14 Tail Dependence: Ignore it at your 401K’s peril Fat Tails Micro Correlations The Unholy Trinity:


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