tail risk

From statistics, namely referring to the end-portion ("tail") of distribution curves.

tail risk (plural tail risks)

1. (chiefly finance) The probability that the value of something will fall more than three standard deviations below the mean
   • 2004, Srichander Ramaswamy, Managing Credit Risk in Corporate Bond Portfolios, →ISBN, page 123:

     The advantage of performing a simulation is that different tail risk measures can be computed from the simulated loss distribution.

   • 2011, International Monetary Fund, Capital Regulation and Tail Risk, →ISBN, page 4:

     Hence, under tail risk, excess risk-shifting incentives of bank shareholders may exist almost independently of the level of initial or required capital.

   • 2012 April 20, Alan Gerstein, The Challenges in Hedging Tail Risk‎:

     Given this backdrop and these fears, “tail risk” hedging, or protecting investment portfolios against extreme negative moves in the market, has been a frequent topic of conversation among market participants.

   • 2013, Paul Karamjeet, Managing Extreme Financial Risk, →ISBN, page xxii:

     Not making this distinction between normal risk and extreme tail risk is often the reason institutions lack clear, highly focused goals and governance policies for the management of tail risk.