35 Sigma

"My first thought is: a lot."
--Cameron Poe (Con Air)

Minyanville estimates that today's Swiss franc 16% move higher against the Euro was a 35 sigma event. A 25 sigma event should be witnessed only once every 100,000 years. That is, of course, assuming that the frequency distribution underlying the model is correct.

It probably isn't.

That's because we already saw a similar magnitude move in the Russian ruble earlier this month.

How many traders were carried out on stretchers today is unknown, but it is likely "a lot" because shorting the Swissie was a popular trade (carry traders borrowing zero cost CHF to fund their projects). Popular because, before today, traders thought they had the word of the Swiss National Bank that they would keep the CHF from breaking thru the 1.20 ceiling vs the Euro.

Fleck made a nice observation tonite, saying that if markets begin to distrust the word of central banks, then this game is over as moral hazard flees the markets.

Quants better fatten the tails of their risk models.