[mediaman]

You're right about him preferring a Cauchy distribution vs. a leptokurtotic distribution, I was mistaken.

Taleb argues that these tools aren't being used in the real world, but all the evidence in places like the options market seems to indicate otherwise: options get way more expensive (from a lognormal perspective) the deeper in/out of the money they are, primarily because there are fat tails already being modeled into the price. And given that options market data, it's tough to see how going long on Black Swans will fetch a good Sharpe ratio--which wouldn't be the case if it were true that everyone were slaves to normal distributions.

[bhewes]

Yeah what you described is called the volatility smile.

I would say going long on Black Swans is more of an insurance policy unless you are a VC. As the Taleb advised Universa Investments L.P. sells itself as "an investment management firm that specializes in hedging tail risks for its clients. Universa has a focused investment approach employing positively-skewed payoffs, empirical and fundamental-based option valuation, and order flow trading."