tail risk

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From statistics, namely referring to the end-portion ("tail") of distribution curves.


tail risk (plural tail risks)

  1. (chiefly finance) The probability that the value of something will fall more than three standard deviations below the mean
    • 2004, Srichander Ramaswamy, Managing Credit Risk in Corporate Bond Portfolios, →ISBN, page 123:
      The advantage of performing a simulation is that different tail risk measures can be computed from the simulated loss distribution.
    • 2011, International Monetary Fund, Capital Regulation and Tail Risk, →ISBN, page 4:
      Hence, under tail risk, excess risk-shifting incentives of bank shareholders may exist almost independently of the level of initial or required capital.
    • Given this backdrop and these fears, “tail risk” hedging, or protecting investment portfolios against extreme negative moves in the market, has been a frequent topic of conversation among market participants.
    • 2013, Paul Karamjeet, Managing Extreme Financial Risk, →ISBN, page xxii:
      Not making this distinction between normal risk and extreme tail risk is often the reason institutions lack clear, highly focused goals and governance policies for the management of tail risk.