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1、c14-HeavyTailedPage465Thursday,October26,20062:11PMCHAPTER14Heavy-TailedandStableDistributionsinFinancialEconometricsnAugustof1992,powerfulhurricaneAndrewravagedthroughsouth-IernFloridaandLouisiana,creatinginsuredlossesexceeding$16billionandtotallosseso
2、fmorethan$30billion.Thissingleeventforcedseveralinsurancecompaniestobankruptcyandsigni?cantlydepletedtheinsur-ancecapitalavailablefornaturalcatastrophes.InSeptember1998,thesuddenriseofvolatilityintheglobal?nancialmarkets,setoffbyadefaultinRussia’ssovere
3、igndebt,ledtothehedgefund1Long-TermCapitalManagement(LTCM)incurringlossesinexcessof90%ofitsvalue.LTCMwashighlyleveraged,meaningithadmorethan$125bil-lionofborrowedfunds.This?nancialmishapcausedaserioustreattothestabilityoftheglobal?nancialsystemandamorew
4、idespreadcol-lapseinthe?nancialmarketswasonlyavoidedbya$3.6billionbailoutorganizedbytheFederalReserveBoardoftheNewYork.Aconsequenceofthiseventisthatitexposedthevulnerabilityof?nancialmarketstodealingsofhedgefunds.Whatdonaturalcatastrophessuchashurricane
5、Andrewhaveincommonwithmarketcrashesandwhataretheimplica-tionsoftheseevents?Althoughthe?rstonerelatestonaturalphenom-enaandthesecondonetosocioeconomicphenomena,bothoftheseeventssharethepropertythatlawsthatgovernextremeeventsmayvio-1Thistermdenotesafundwh
6、osemanagersreceiveperformance-relatedfeesandcanfreelyusevariousactiveinvestmentstrategiestoachievepositiveabsolutereturns,in-volvinganycombinationofleverage,derivatives,longandshortpositionsinsecuri-tiesoranyotherassetsinawiderangeofmarkets.Hedgefundsar
7、ecurrentlynotregulatedbutmonitoringoftheiractivitiesisincreasing.Theterms“pooledinvest-mentvehicle”and“sophisticatedalternativeinvestmentvehicles”areusedinter-changeably.465c14-HeavyTailedPage466Thursday,October26,20062:11PM466FINANCIALECONOMETRICSlatet
8、heassumptionsonwhichthecurrentprevailingassessmentofinsur-ancelossesduetoextremeweathereventsandriskmanagementpracticesin?nancialmarketsarebuiltupon.Forthehurricaneevent,theexpertcommissionthatreviewedthesituationconcludedthat“th
