Taleb: Statistics and Risk Two Different Businesses

Taleb: Statistics and Risk Two Different Businesses

In the risk business one is not so much concerned with the probability of loss as the expected size of the loss. We explore this idea for various probability distributions by looking at the expected loss given that the loss exceeds a certain threshold. We see for fat tails that the expected loss exceeds the threshold itself.

GI => GO (IV) Generalized Extreme Value Distribution

GI => GO (IV) Generalized Extreme Value Distribution

As part of my procedure for back-testing, I validate the data before using it. One of the validation steps is to check for unusually large daily changes in the raw close. Here I explore the extreme value distribution and its role in data validation protocols for systematic trading system design.