Of abridged black swans

There is a piece in The Economist special report on the future of finance (January 24h 2009) that could save you reading the whole The Black Swan book. It summarises so nicely and crisply the book while never ever mentioning it that I suspect it could have been written by the author. (The Economist has the interesting rule that papers are never authored so this leaves the theory open.) If you have already read the book, you can start looking for similarities, starting from the title “In Plato’s cave”, and identical sentences that support my claim. If not, it is much easier reading than the book… (The only fact going against my theory is that Nassim Taleb is mentioned neither in the sources and acknowledgements of the report nor in the references. Or maybe not since the acknowledgement starts with “The author would like to express…” Some readers of the paper seem to think the author is Emmanuel Derman, but then, why would he mention “black swans”..?!)

The criticisms presented there are basically the same as in The Black Swan, focussing on the inadequacy of the Gaussian distribution, of Brownian motion and of the Black-Scholes formula, with a new link to the mortgage crisis. It again argues for using fat tail distributions with no moment. As a probabilist marginalia, the paper contains the graph reproduced here as an illustration, which wins the day as a bad graph, since those two probability densities cannot sit on top of one another! A true clanger indeed!

One Response to “Of abridged black swans”

  1. […] shares the same feature as a density plot I saw in The Economist when looking at an abridged Black Swan, namely that it shows two densities with the same modal value and with two strongly different […]

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