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Word of the Day: Fat-Tail

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Uploaded on Jan 10, 2012

Fat-tails distributions are a probability distribution whose outcomes are represented as thick ends or "tails" that form towards the edges of a distribution curve, indicating an irregularly high likelihood of a catastrophic event. The risk associated with these types of distributions is referred to as "tail risk," which represents an event with a low probability of occurring, but whose outcome carries a disproportionately high impact. Bill Gross of PIMCO has spoken about these type of risks in the past, but was out most recently with his "paranormal" report, suggesting that we now living increasingly in a world where the implosion of bimodal fat tails is becoming ever more likely. These tails are getting fatter. The mounts are getting taller.

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