Monday, January 21, 2008

Six-Sigma Events

Satire from n+1: Interview with a Hedge Fund Manager
n+1: What’s a “ten-sigma event”?

HFM: Meaning that it’s ten standard deviations from the mean… meaning it’s basically impossible, you know? But it’s kind of a joke, because returns are very fat-tailed, so the joke that we always say is, “Oh my God, today I had a loss that’s a six sigma event! I mean that’s the first time that’s happened in three months!” It’s like a one in ten-thousand-year event, and I haven’t had one in the last three months.

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