This finding is consistent with the view that the average payoff to the unhedged carry trade reflects a peso problem.
Rebelo, "Do Peso Problems Explain the Returns to the Carry Trade?
Financial markets refer to this phenomenon--the incorporation of a premium for the small probability of a big, discrete price change--as the peso problem
, after a similar event during the early 1970s in the market for Mexican pesos.
An alternative approach to the "drift adjustment method" is presented, which takes care of the peso problem
and provides consistent estimates of the expected rate of realignment.
13) explain the peso problem
this way: "Suppose that short-term interest rates can evolve in three different regimes, with the mean and volatility of rates increasing together as we move across regimes.
Some say it's the fall-out from the Mexican peso problem