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Understanding Black Swan Events

The document defines a Black Swan event as an unexpected event that has a significant impact on financial markets. It describes Black Swan events as being rare, unpredictable, and having severe consequences. Two examples of Black Swan events given are the 2008 US housing market crash and Zimbabwe's hyperinflation in 2008.

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Aayush
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184 views9 pages

Understanding Black Swan Events

The document defines a Black Swan event as an unexpected event that has a significant impact on financial markets. It describes Black Swan events as being rare, unpredictable, and having severe consequences. Two examples of Black Swan events given are the 2008 US housing market crash and Zimbabwe's hyperinflation in 2008.

Uploaded by

Aayush
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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WHAT IS BLACK SWAN EVENT?

Black Swan is an event Coined by


Nassim Nicholas Taleb, it refers to an
unexpected event or occurrence that has
a significant impact on financial
markets.
Let's use an example to help us understand it better !

Imagine you are sailing smoothly on


the financial market, enjoying the
calm and predictable waves. Suddenly,
a surprising event appears, disturbing
the peacefulness of your journey. This
is what Black Swan event is.

A Black Swan event is an unforeseen event


that has a severe impact on financial
markets, often leading to extreme volatility,
losses, and disruptions. These events are
characterized by their rarity,
unpredictability, and the significant
consequences they have on the global
economy.
But, why do they call it a Black Swan event?

A Black Swan is a rare bird because most


swans are white. People used to believe that
black swans didn't exist until one was found.
This teaches us that events we think are very
rare may actually happen more often than
we think.
And how do we identify a black swan event?

Taleb describes that a black swan as an event that:


Is so rare that even the possibility that it
might occur is unknown.
It causes a huge impact when it happens.
When looking back, it is often explained as if
it could have been predicted.
For Example :-

1
The crash of the U.S. housing market during
the 2008 financial crisis is one of the most
recent and well-known black swan events. The
effect of the crash was catastrophic and
global, and only a few outliers were able to
predict it happening.

For Example :-

Also in 2008, Zimbabwe had the worst case


of hyperinflation in the 21st century with a
peak inflation rate of more than 79.6 billion
%. An inflation level of that amount is nearly
impossible to predict and can easily ruin a
country financially.

2
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