{"id":35,"date":"2009-06-03T13:12:47","date_gmt":"2009-06-03T20:12:47","guid":{"rendered":""},"modified":"2011-06-16T12:32:12","modified_gmt":"2011-06-16T19:32:12","slug":"ssrn-finiteness-of-variance-is-irrelevant-in-the-practice-of-quantitative-finance-by-nassim-taleb","status":"publish","type":"post","link":"https:\/\/www.blackswanreport.com\/blog\/2009\/06\/ssrn-finiteness-of-variance-is-irrelevant-in-the-practice-of-quantitative-finance-by-nassim-taleb\/","title":{"rendered":"SSRN-Finiteness of Variance is Irrelevant in the Practice of Quantitative Finance by Nassim Taleb"},"content":{"rendered":"<blockquote><p>Shared by  Woolwit<br \/>\n<br \/>\nPaper written by NNT.<\/p><\/blockquote>\n<div>Finiteness of Variance is Irrelevant in the Practice of Quantitative Finance<\/div>\n<p><center><font face=\"Myriad Roman, Arial, Helvetica, Sans-serif;\" size=\"2\"><br \/><a href=\"http:\/\/papers.ssrn.com\/sol3\/cf_dev\/AbsByAuth.cfm?per_id=475810\" style=\"font-size:14px;font-weight:bold\" title=\"View other papers by this author\">Nassim Nicholas Taleb <\/a><br \/>NYU-Poly Institute; London Business School<br \/><\/font><\/p>\n<p><font face=\"Myriad Roman, Arial, Helvetica, Sans-serif;\" size=\"2\">June 09, 2008<\/font><\/p>\n<p><\/center><br \/><strong><font face=\"Myriad Roman, Arial, Helvetica, Sans-serif;\" size=\"2\">Abstract: <\/font><\/strong>\u00a0\u00a0\u00a0\u00a0<br \/><font face=\"Myriad Roman, Arial, Helvetica, Sans-serif;\" size=\"2\">Outside the Platonic world of financial models, assuming the underlying distribution is a scalable power law, we are unable to find a consequential difference between finite and infinite variance models &#8211; a central distinction emphasized in the econophysics literature and the financial economics tradition. While distributions with power law tail exponents \u03b1&gt;2 are held to be amenable to Gaussian tools, owing to their finite variance, we fail to understand the difference in the application with other power laws (1&lt;\u03b1&lt;2) held to belong to the Pareto-L\u00e9vy-Mandelbrot stable regime. The problem invalidates derivatives theory (dynamic hedging arguments) and portfolio construction based on mean-variance. This paper discusses methods to deal with the implications of the point in a real world setting.<\/font><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Shared by  Woolwit <\/p>\n<p>Paper written by NNT.<br \/>\nFiniteness of Variance is Irrelevant in the Practice of Quantitative FinanceNassim Nicholas Taleb NYU-Poly Institute; London Business SchoolJune 09, 2008Abstract: \u00a0\u00a0\u00a0\u00a0Outside the Platonic world of financia&#8230;<\/p>\n","protected":false},"author":8,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5,445,73],"tags":[],"class_list":["post-35","post","type-post","status-publish","format-standard","hentry","category-feeds","category-papers","category-pdf"],"_links":{"self":[{"href":"https:\/\/www.blackswanreport.com\/blog\/wp-json\/wp\/v2\/posts\/35","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.blackswanreport.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.blackswanreport.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.blackswanreport.com\/blog\/wp-json\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/www.blackswanreport.com\/blog\/wp-json\/wp\/v2\/comments?post=35"}],"version-history":[{"count":1,"href":"https:\/\/www.blackswanreport.com\/blog\/wp-json\/wp\/v2\/posts\/35\/revisions"}],"predecessor-version":[{"id":3666,"href":"https:\/\/www.blackswanreport.com\/blog\/wp-json\/wp\/v2\/posts\/35\/revisions\/3666"}],"wp:attachment":[{"href":"https:\/\/www.blackswanreport.com\/blog\/wp-json\/wp\/v2\/media?parent=35"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.blackswanreport.com\/blog\/wp-json\/wp\/v2\/categories?post=35"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.blackswanreport.com\/blog\/wp-json\/wp\/v2\/tags?post=35"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}