The Wall Street Journal's Eleanor Laise has an article on Tuesday about new tools on Wall Street that assume market returns falling along a so-called "fat-tailed" distribution.

This compares to standard portfolio construction tools that assume returns falling along a bell-curve-shaped distribution.

Laise notes that Morningstar unit Ibbotson Associates recently incorporated fat-tailed assumptions into its Monte Carlo simulations.

She also notes that insulation from extreme market events doesn't come with a small price. Pimco, which hedges against extreme market events in many mutual funds it rolled out last year, estimates that hedges could cost investors 0.5 percent to 1 percent of fund assets a year.

Pimco applies the hedges to products including target-date funds. It also plans to unveil additional funds that utilize the approach in the next couple of years, Pimco managing director Vineer Bhansali was quoted as saying. 

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