Tail Risk Model Risk, What's the Difference?

CFA Level I
#1

Is one just a more general form for the other?

Also, can someone provide a definition of tail risk? I can’t find a good definition anywhere. The best I’ve got is:

“Tail risk is a form of portfolio risk that arises when the possibility that an investment will move more than three standard deviations from the mean is greater than what is shown by a normal distribution.”

But this raised the question that this thread is trying to address i.e. what the difference between tail risk and model risk is.

#2

Model risk is the risk that your model doesn’t accurately portray the behavior of an investment.

If you use a normal distribution to model an investment, then tail risk would also be model risk.

If you accurately model the investment behavior, but that behavior has a fat lower tail, then you’ll have tail risk without model risk.

#3

Ah so tail risk inherently takes the normal distribution as the benchmark?

#4

Yup.

#5

Schweet.