Introduction

Michele Leonardo Bianchi, Stoyan V Stoyanov, Gian Luca Tassinari, Frank Fabozzi () and Sergio M Focardi

Chapter 1 in Handbook of Heavy-Tailed Distributions in Asset Management and Risk Management, 2019, pp 3-21 from World Scientific Publishing Co. Pte. Ltd.

Abstract: After explaining the need for modeling the tails of a distribution, we describe the univariate and multivariate framework for analyzing the tails of a distribution. We then provide the definition of extreme events. The main topics covered in this chapter are as follows:brief history of empirical applications of heavy tails to finance and the role of heavy tails in other fields;the reasons for the failure of models built on traditional economic theories and the avenues for reformulating economic theory to build better models to explain a financial crisis;stylized facts about the behavior of financial markets.

Keywords: Heavy Tail Distributions; Fat Tail Distributions; Lévy Processes; Tempered Stable Distributions; Multivariate Time-changed Brownian Motion; Extreme Value Theory; Risk Management (search for similar items in EconPapers)
JEL-codes: C02 G32 (search for similar items in EconPapers)
Date: 2019
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