The 1987 crash was a multi-sigma event under the log-normal assumption.

Evidence

Qualitatively, the emergence of the skew is close to consistent with standard notions of rational learning. On the log-normal model, the fall in the S&P future price on that dreadful Monday was a 27j event; its probability was (Jackwerth and Rubinstein 1996, p. 1612). Any 160 10 doubts arising from 1987’s uniqueness seem to have been removed in practice by the 6% fall of the S&P 500 index on October 13, 1989, a event. — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 142

Categorization

• CANDY: A 27-sigma event happening in real markets is a striking, tweetable fact about how wrong the log-normal model was.
• XREF: connects to: The 1987 crash was a 27-sigma event under the log-normal model. — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 142; Fat-tailed price distributions were documented decades before the 1987 crash — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1163; The 1987 crash ended the Black-Scholes model’s empirical fit for good — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 904

Related

• The 1987 crash was a 27-sigma event under the log-normal model. (similarity 0.93)
• The 1987 crash permanently shifted the S&P options market’s implied distribution toward crash expectations. (similarity 0.85)
• Fat-tailed price distributions were documented decades before the 1987 crash (similarity 0.84)
• Post-1987 margin rules replaced log-normal pricing assumptions with fat-tailed stable distributions (similarity 0.83)
• The log-normal assumption may have been self-undermining through portfolio insurance. (similarity 0.79)
• The 1987 crash permanently broke Black-Scholes fit with market prices (similarity 0.78)
• The 1987 crash ended the Barnesian performativity of classic option-pricing theory (similarity 0.78)

Broader Connections

• The 1987 crash was a 27-sigma event under the log-normal model. #corroborates (0.95) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 142
• The 1987 crash ended the Black-Scholes model’s empirical fit for good #expands (0.75) — Donald MacKenzie, An Engine, Not a Camera, 904
• Fat-tailed price distributions were documented decades before the 1987 crash #complicates (0.70) — Donald MacKenzie, An Engine, Not a Camera, 1163