[Animats]

Taleb's basic claim is that options that are way out of the money are underpriced. So he set up a fund, Empirica, which bought options a long way from the current value. This strategy does extremely well in years of a sudden downturn, and loses money in all other years. He and his investors did really well in 2008. He doesn't talk about the other years. Solid numbers for Empirica are really hard to find. Whether this is a win as an ongoing strategy is a big question. If you'd bought into that strategy in 2009, after it worked once, you'd have lost money for a decade.

[pfortuny]

Not trying to argue (wp is not a source) but it says he closed down in 2004?

[Animats]

Right, Empirica was the first "black swan" fund, which caught the crash of 2000. Universa was the next round, starting in 2007. That caught the 2008 crash.

As a strategy, this depends on a rough prediction of when the next crash will occur.

[repsilat]

> this depends on a rough prediction of when the next crash will occur

If you think the tails are mispriced (and you have some kind of alternative distribution), and markets are liquid, can't you just keep on making Kelly bets? Maybe you need to model third-party investors bailing too, though...

[pfortuny]

OK thanks for the info.