Heavy-Tailed Distributions and Robustness in Economics and Finance
This book focuses on general frameworks for modeling heavy-tailed distributions in economics, finance, econometrics, statistics, risk management and insurance. A central theme is that of (non-)robustness, i.e., the fact that the presence of heavy tails ca
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Marat Ibragimov Rustam Ibragimov Johan Walden
Heavy-Tailed Distributions and Robustness in Economics and Finance
Lecture Notes in Statistics Volume 214
Edited by P. Bickel P. Diggle S. E. Fienberg U. Gather I. Olkin S. Zeger
More information about this series at http://www.springer.com/series/694
Marat Ibragimov • Rustam Ibragimov • Johan Walden
Heavy-Tailed Distributions and Robustness in Economics and Finance
123
Marat Ibragimov Institute of Economics and Finance Kazan Federal University Kazan, Russia
Rustam Ibragimov Imperial College Business School London, United Kingdom
Johan Walden University of California at Berkeley Walter A. Haas School of Business Berkeley, CA, USA
ISSN 0930-0325 Lecture Notes in Statistics ISBN 978-3-319-16876-0 DOI 10.1007/978-3-319-16877-7
ISSN 2197-7186
(electronic)
ISBN 978-3-319-16877-7
(eBook)
Library of Congress Control Number: 2015941320 Springer Cham Heidelberg New York Dordrecht London © Springer International Publishing Switzerland 2015 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. Printed on acid-free paper Springer International Publishing AG Switzerland is part of Springer Science+Business Media (www.springer.com)
(To Saniya) @ M. I. (To my parents) @@ @ R. I. To Nella, Tintin, Felix, and Theo J. W.
Foreword
For a long time, the presence of (heavy-tailed) power laws, also referred to as Pareto distributions, has been observed in data covering all fields of science and applications. What has been much less studied is the important question: “What are the economic consequences of this observation?” Based on several of the authors’ publications, it is precisely this question which is addressed in this interesting book. Heavy-tailed models typically induce a kind of regime switching (non-robust) behavior as a function of the tail-decay parameter; this leads to a fundamental rethinking of important questions like portfolio diversification or the (re)insurance of catastrophic risks. Extreme heavy-tailed
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