The (Mis)behavior of Markets¶
Mandelbrot, B., & Hudson, R. L. (2004). The (Mis)behavior of Markets: A Fractal View of Risk, Ruin, and Reward. Basic Books.
Cited by¶
1 citation across 1 artifact.
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Primes¶
- Central Limit Theorem
- The same structure underwrites signal processing (summed independent sensor noise modeled as additive white Gaussian noise, enabling matched and Kalman filters) and quantitative finance — with the prime's failure-mode half doing real work there: portfolio-risk models assuming Gaussian aggregate returns break exactly when the preconditions fail, when asset returns become strongly correlated in a crash (dependence) or exhibit heavy tails (infinite-variance-like behavior), redirecting the aggregate onto a fat-tailed attractor the Gaussian model under-prices.
This sourceArgues that asset returns exhibit heavy tails and crash-time correlation, so Gaussian (CLT-based) risk models under-price tail risk.
- The same structure underwrites signal processing (summed independent sensor noise modeled as additive white Gaussian noise, enabling matched and Kalman filters) and quantitative finance — with the prime's failure-mode half doing real work there: portfolio-risk models assuming Gaussian aggregate returns break exactly when the preconditions fail, when asset returns become strongly correlated in a crash (dependence) or exhibit heavy tails (infinite-variance-like behavior), redirecting the aggregate onto a fat-tailed attractor the Gaussian model under-prices.
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Registry ID ref:89b8c8b59866 · see in the full table