The Wall Street Journal's Eleanor Laise
on Tuesday about new tools
on Wall Street that assume market returns
falling along a so-called "fat-tailed" distribution.
This compares to standard portfolio construction
tools that assume returns falling along a bell-curve-shaped distribution.
Laise notes that Morningstar unit Ibbotson Associates
recently incorporated fat-tailed assumptions into its Monte Carlo simulations.
She also notes that insulation from extreme market events
doesn't come with a small price. Pimco
, which hedges against extreme market events
in many mutual funds it rolled out last year, estimates that hedges
could cost investors 0.5 percent to 1 percent of fund assets a year.
Pimco applies the hedges to products including target-date funds. It also plans to unveil additional funds that utilize the approach
in the next couple of years, Pimco managing director
was quoted as saying.
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