Towards the end of last year in Uncertainty Wednesday, I wrote a post about suppressed volatility and gave an example. I ended the write up with:if we simply estimate the volatility of a process from the observed sample variance, we may be wildly underestimating potential future variance This turns out to be true not just for cases of “suppressed volatility” but much more broadly. For any fat tailed distribution, the sample variance will underestimate the true variance. Mistaking the sample v...

Towards the end of last year in Uncertainty Wednesday, I wrote a post about suppressed volatility and gave an example. I ended the write up with:if we simply estimate the volatility of a process from the observed sample variance, we may be wildly underestimating potential future variance This turns out to be true not just for cases of “suppressed volatility” but much more broadly. For any fat tailed distribution, the sample variance will underestimate the true variance. Mistaking the sample v...