Fat tail and Naked: Difference between pages

Revision as of 10:05, 7 October 2015

A 'naked' position in a derivatives contract is one where the holder has no other related offsetting contract, asset or liability.

The only possible profit or gain is from a favourable outturn market price.

Naked positions are, by definition, speculative (rather than hedging).

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-'Fat tails' describes the greater likelihood of extreme market conditions, than predicted by conventional models of probability.
+A 'naked' position in a derivatives contract is one where the holder has no other related offsetting contract, asset or liability.
-This pattern is also known as 'leptokurtosis'.
+The only possible profit or gain is from a favourable outturn market price.
+Naked positions are, by definition, speculative (rather than hedging).
-This means that the likelihood and size of extreme negative events is systematically underestimated by conventional statisitcal models.
 == See also ==
-* [[Black swan]]
+* [[Arbitrage]]
-* [[Frequency distribution]]
+* [[Derivative]]
-* [[Leptokurtic frequency distribution]]
+* [[Futures]]
-* [[Leptokurtosis]]
+* [[Hedging]]
-* [[Normal frequency distribution]]
+* [[Option]]
-* [[Standard deviation]]
+* [[Outturn]]
-* [[Tail event]]
+* [[Speculation]]
-* [[Tail risk]]