Aug 7, 2011

Some fun consequences of the previous post on Cauchy distributions

Look at my kinda rant on stack exchange here.

Essentially, the theory of diversification for stocks is completely different if you assume that the differentials of stocks are Cauchy distributed instead of Normally distributed. In fact, as I kinda point out, diversification doesn't even seem to make any sense under the conditions that stocks are levy processes.

There were a number of good answers and its gonna take me a while to go through the recommended reading.