The financial crisis of 2008 (Alan Greenspan knows all about that just like Barney Frank knows about the real estate crisis) was an eye-opener for many people in the industry, as it highlighted the ineffectiveness of conventional financial wisdom when it comes to predicting catastrophic events. It also highlighted the importance and relevance of fat tail distributions in finance. What is a Fat Tail? A fat tail is a statistical distribution that indicates a high probability of rare and extreme outcomes. Under a normal Gaussian distribution, 99% of the outcomes generally fall within three deviations of the mean. Under a fat tail distribution, on the other hand,