In many financial mathematical models, the assumption that the returns of an asset follow a normal distribution such that small percentage daily gains or daily losses are much more likely than medium or large movements up or down. – On the other hand, it remains a fact that, for example, large price drops have occurred on the stock markets much more frequently than this assumption implies. According to the normal distribution doctrine, a stock market crash like the one in October 1987 or even turbulences like the subprime crisis in 2007 should occur only once in 10 to the power of 87 years. In fact, however, a stock market crash occurred about every 38 years. – See financial mathematics, formulas, financial mathematical, model risk, distribution, stable.
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