500 krónurImage via Wikipedia

The Icelandic Krona currency exchange index follows the Power Law, it can be seen in the most rudimentary of analysis…

Here is the analysis of ISKUSD exchange rate data for however long I could get, a simple histogram shows visually that the exchange rate is distributed by a power law. In addition, I was able to do a Log plot of the observations and it clearly follows a path that should give us

enough indication that the ISK exchange does not follow a Normal “Bell” curve distribution.

However, last week I was talking to a currency trader and he told me that before the crash of the Icelandic Krona last year, they calculated the proabability of ISK crashing and they found it to be a 8 sigma (read highly unlikely! or A Black Swan) event… the fact that it happened proves atleast to me that the methods and theory used to analyze the ISK is not correct. I am writing a paper with Dr.Helgi Tomasson with University of Iceland with the title “Can Power Law help us avoid the highly improbable tail events?” hopefully we will be able to answer the above question.

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