Tail Risk

Tail risk is the risk of an extreme, low-probability loss occurring — one that sits in the "tail" of the probability distribution of outcomes, far beyond what typical volatility measures would suggest. It's the same underlying idea as a black swan event, but framed as an ongoing statistical property of markets rather than a single occurrence. Standard risk metrics like standard deviation or basic VaR tend to understate tail risk, since financial market returns have historically shown "fatter tails" — more frequent extreme moves — than a normal distribution would predict.