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> Moreover, if non-normality is the problem, then pretty much all of modern finance is invalidated. I’d say, finance from the 70s is invalidated. And it has be
by nlitened 7y ago
> Moreover, if non-normality is the problem, then pretty much all of modern finance is invalidated.
I’d say, finance from the 70s is invalidated. And it has been invalidated countless times with all the major mutual funds going bust.
I’d love to encourage you to read more on this topic. Taleb’s “The Black Swan” is a good start, his other books are also good.
- smabie 7y agoBlack Scholes, VaR, factor models, CAPM, modern portfolio theory, etc are all based on the normal distribution and are all still used in industry today. Every quant fund in the world is using models that assume a log normal distribution of returns. Moreover, Taleb certainly used models based on log normal distributions at his hedge funds.