tail risk

English

Etymology

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

Noun

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.

   • 2012 April 20, Alan Gerstein, “The Challenges in Hedging Tail Risk”, in The New York Times‎^[1]:

     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.

See also

• black swan (“a rare and hard-to-predict event with major consequences”)