RISC Junior Scholar Colloquium – No variance? No problem! Gini measures to combat infinite variances caused by fat tails in cryptocurrency.

By Leonard Buglak, Actuarial Analyst at Sun Life

Leonard Buglak

We are beyond happy and excited to have a 2022 York University actuarial science alumnus, Leonard Buglak, as a guest and speaker at the RISC Junior Scholar colloquia series of talks in November!

Fat tails of returns are a common occurrence in portfolio management. Fat tails are caused by frequent price fluctuations, which can often be found in more volatile assets such as cryptocurrency. In the unique yet frequently occurring cases, fat tails of returns result in infinite variance, which limits the ability to apply appropriate risk measures such as Value of Risk, Expected Shortfall, and Tail-Standard-Deviation. The issue of infinite variances is not a rare phenomenon in the insurance industry, with many professionals struggling to find a way to measure variability in such cases. In this presentation, I introduce the Gini risk measures, following a report constructed by Edward Furman, Nawaf Mohammed and myself, built on the work of Corrado Gini. Gini measure is the sufficient alternative for the traditional variance, which can solve many problems currently faced by mathematicians and industry professionals.