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Jumps are an attempt to solve a math mistake in Modern Portfolio Theory. In the 19502-70s, economists were working on solving the variance-mean tradeoff. Furthermore, they needed to do so with punchcard computing. That radically restricted the set of computable, potential solutions. Both the normal distribution and the log-normal distribution are ...


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Jumps do not imply fat tails. See the simulation in R. Note that the excess kurtosis of [normal variable + jump] is negative. > set.seed(1) > Normal_Variable <- rnorm(1e8) > kurtosis(Normal_Variable) [1] -0.000628316 > Jump <- 2 * ((runif(1e8) < 0.5) * 2 - 1) > kurtosis(Normal_Variable + Jump) [1] -1.280009


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