Developed by Nassim Nicholas Taleb (Antifragile, 2012) from Johan Jensen's inequality for convex functions (1906).
Reads a commitment by the shape of its payoff: convex when gains grow faster than losses under volatility, concave when the reverse holds.
When to reach for it
Deals, contracts, or positions that look fine on average, where the real question is what happens when conditions swing hard either way.
How it runs
- Sketch the outcome against the size of the swings in inputs.
- Classify the curve: bending up, straight, or bending down.
- Welcome volatility where the curve bends up.
- Limit volatility where it bends down.
- Reshape concave exposures with caps, hedges, or options.
Where it sits in SOLVE eX
Go to the source
- Antifragile: Things That Gain from Disorder, 2012
- Sur les fonctions convexes et les inegalites entre les valeurs moyennes, Acta Mathematica, 1906