Extreme events part 2. Financial catastrophes. The overthrow of modern financial theory.

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In this paper we consider Extreme Financial Events.

These events are much more common than conventional theory anticipates, and like geophysical extreme events have a number of key characteristics that are found over and over again in actual examples. They are “unexpected”, and therefore not capable of being managed within the capital base, which the consequence that a single event compounds into a cascade of failures.