Fat-Tailed and Skewed Asset Return Distributions : Implications for Risk Management, Portfolio Selection, and Option Pricing [Hardcover]

Svetlozar T. Rachev (Author), Frank J. Fabozzi (Author), Christian Menn (Author)

Book Description

Series: Frank J. Fabozzi Series | Publication Date: August 5, 2005

While mainstream financial theories and applications assume that asset returns are normally distributed, overwhelming empirical evidence shows otherwise. Yet many professionals don’t appreciate the highly statistical models that take this empirical evidence into consideration. Fat-Tailed and Skewed Asset Return Distributions examines this dilemma and offers readers a less technical look at how portfolio selection, risk management, and option pricing modeling should and can be undertaken when the assumption of a non-normal distribution for asset returns is violated. Topics covered in this comprehensive book include an extensive discussion of probability distributions, estimating probability distributions, portfolio selection, alternative risk measures, and much more. Fat-Tailed and Skewed Asset Return Distributions provides a bridge between the highly technical theory of statistical distributional analysis, stochastic processes, and econometrics of financial returns and real-world risk management and investments.

Editorial Reviews

Review

"On the whole a valuable attempt to continue the work of Mandlebrot and others, to break the habit of treating the normal distribution curve as. . . normal." -- HedgeWorld News

"This book is well-written by knowledgeable authors and provides readers with an excellent overview of where fat-tailed or skewed distributions may be needed. The book unfolds in a clear and easy-to-read way, and I would definitely recommend this as an excellent introductory text." -- Financial Engineering News, June 30, 2006

From the Back Cover

Fat-Tailed and Skewed Asset Return Distributions

While mainstream financial theories and applications assume that asset returns are normally distributed, the overwhelming empirical evidence shows otherwise. Yet many professionals fail to appreciate the highly statistical models that take this empirical evidence into consideration.

Svetlozar Rachev, Christian Menn, and Frank Fabozzi understand this dilemma, and in Fat-Tailed and Skewed Asset Return Distributions, they offer you a less technical look at how portfolio selection, risk management, and option pricing modeling should and can be undertaken when the assumption of a non-normal distribution for asset returns is violated.

Topics covered in this comprehensive book include:

• An extensive discussion of probability distributions used in finance
• Estimating probability distributions
• The basics of stochastic processes
• Portfolio selection and alternative risk measures
• Market, credit, and operational risk measurement
• Black-Scholes option pricing model and its extensions when the model's assumptions are modified to meet the empirical distributional evidence and tests
• And much more

Fat-Tailed and Skewed Asset Return Distributions provides a bridge between the highly technical theory of statistical distributional analysis, stochastic processes, and econometrics of financial returns and real-world risk management and investments.

See all Editorial Reviews

Product Details

• Hardcover: 369 pages
• Publisher: Wiley; 1 edition (August 5, 2005)
• Language: English
• ISBN-10: 0471718866
• ISBN-13: 978-0471718864
• Product Dimensions: 9.5 x 6.4 x 1.1 inches
• Shipping Weight: 1.3 pounds (View shipping rates and policies)
• Average Customer Review: 2.6 out of 5 stars  See all reviews (7 customer reviews)
• Amazon Best Sellers Rank: #1,107,030 in Books (See Top 100 in Books)
  • #99 in Books > Business & Investing > Management & Leadership > Pricing

Customer Reviews

Most Helpful Customer Reviews

17 of 17 people found the following review helpful:

1.0 out of 5 stars statistical data miner, March 21, 2006

By 

Statistical Data Miner (United States) - See all my reviews

This review is from: Fat-Tailed and Skewed Asset Return Distributions : Implications for Risk Management, Portfolio Selection, and Option Pricing (Hardcover)

I unfortunately learned too late that the negative review of Jukka Taskinen was understatement.

The "book" is a series of shallow, disjointed chapters that just touch on the important topics. It superficially skims a wide range of issues so that the reader can be a term-dropping jack-of-all-trades but master of none.

I was partially lulled by its availability as a .pdf, which is convenient, and its title and purported thesis of heavy-tailed modeling, which really is a very important thesis but is just a red herring here: the book provides very superficial treatment of this concept throughout, without really building a solid methodological case for it (even though its true, which is why its clever and deceptive marketing, rather than a scholarly OR useful practitioner work). It provides no new insight generally, and the only new insight to me was that I am beginning to see what passes as a typical of Fabozzi publication. I'm angry I wasted the $$.

10 of 10 people found the following review helpful:

1.0 out of 5 stars Too superficial to be of any value., August 15, 2006

By 

Allan D. Bennett (Vienna, VA USA) - See all my reviews
(REAL NAME)   

Amazon Verified Purchase

This review is from: Fat-Tailed and Skewed Asset Return Distributions : Implications for Risk Management, Portfolio Selection, and Option Pricing (Hardcover)

I purchased this book because I was told that it "treated" important topics in the statistical analysis of fat-tailed distributions of price movements--namely, copulas, modeling of VaR under non-normal stable distributions, etc. Unfortunately, these topics are given little substantive coverage. The book is basically a long survey article with little practical instruction for HOW to deal with fat-tailed distributions. The one strong point of the book is the extensive list of references. Mainly though, the book suffers from the general sense of "math anxiety" that is so prevalent throughout the population. Bottom line, if you don't know enough math to deal with the technicalities that the authors so studiously avoid, you can't do anything useful with the modeling of fat-tailed distributions. Consequently, I cannot think of any audience for whom this book would be useful, other than someone wishing to do a literature search of the substantive work in this area.

11 of 12 people found the following review helpful:

5.0 out of 5 stars READ THE BACK PAGE & PREFACE!, October 17, 2006

By 

M. Bull "Michael" (England) - See all my reviews
(REAL NAME)   

This review is from: Fat-Tailed and Skewed Asset Return Distributions : Implications for Risk Management, Portfolio Selection, and Option Pricing (Hardcover)

To all 1* reviewers, moaning about this being a "superficial" book - READ THE BACK PAGE, quote "...they offer you a LESS TECHNICAL look at how portfolio selection, risk management & option pricing modeling should and can be undertaken..."

Now, READ THE PREFACE: page xii "We must admit our intent at the outset was to provide a NON-TECHNICAL treatment of the topic."

If you can't understand who this book is intended for, are you qualified to write a review? To dismiss this as a book for "name droppers" reflects an arrogant misunderstanding. Everyone has to start somewhere on the learning curve.

In terms of its stated aim, this book does an excellent job. There are hundreds of thousands of investment "professionals" who have never heard of stable Paretian distributions or copulas, who would benefit from education. And, yes it is printed on cheap paper. But that makes it very light & easy to carry round! Is it overpriced? Of course - nothing new there. But savvy buyers don't pay full price anyway.