Leptokurtosis and Resolution: Difference between pages

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Leptokurtosis is observed in many financial distributions.  
<i>Bank resolution.</i>


It means a more ‘pointy-headed’ and ‘fat tailed’ observed distribution, compared with the distributions predicted by the normal and lognormal models.  
The special process of resolving the problem of the actual or threatened insolvency of financial firms.  


The speed with which value destruction occurs in a failing financial firm means that normal corporate insolvency processes and liquidation are inappropriate for such firms.


Importantly, there is a fatter downside tail (‘left tail’) in the observed data.  
As in normal insolvency, losses will be expected for some creditors.


In other words the observed frequency of large negative returns (or results) is greater than predicted - for example - by the lognormal model of the distribution assumed in the Black Scholes option pricing model.


Contrast with ‘[[recovery]]’ in which a financial firm facing difficulties is returned to acceptable financial health without imposing losses on the distressed firm's creditors.


Because of leptokurtosis, Value at Risk models which use a normal frequency distribution will understate the Value at Risk.


== See also ==
* [[Resolution Authority]]
* [[Liquidation and Payout]]
* [[Insolvency]]
* [[OLA]]
* [[Key Attributes]]
* [[Bailin]]
* [[Recovery]]
* [[Cash in the new post-crisis world]]
* [[Resolution weekend]]


== See also ==
* [[Black Scholes option pricing model]]
* [[Fat tail]]
* [[Leptokurtic frequency distribution]]
* [[Lognormal frequency distribution]]
* [[Normal frequency distribution]]
* [[Tail]]
* [[Value at risk]]


[[Category:The_business_context]]
=== Other links ===
[http://www.bankofengland.co.uk/financialstability/Documents/resolution/apr231014.pdf| The Bank of England's approach to resolution, October 2014]

Revision as of 21:01, 4 August 2016

Bank resolution.

The special process of resolving the problem of the actual or threatened insolvency of financial firms.

The speed with which value destruction occurs in a failing financial firm means that normal corporate insolvency processes and liquidation are inappropriate for such firms.

As in normal insolvency, losses will be expected for some creditors.


Contrast with ‘recovery’ in which a financial firm facing difficulties is returned to acceptable financial health without imposing losses on the distressed firm's creditors.


See also


Other links

The Bank of England's approach to resolution, October 2014

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