Black Swan Event

Black Swan Event


A Black Swan event in its simplest form is an event that comes as a surprise and has a significant effect. 

The history of the Black Swan Theory - or the Theory of Black Swan Events - dates back to a Latin expression of the 2nd-century by Roman poet Juvenal, when he would characterize something as:

ÔÇťrara avis in terris nigroque simillima cygnoÔÇŁ

This Latin expression translates to ÔÇťa rare bird in the lands and very much like a black swanÔÇŁ. Originally when this phrase was first used, it was thought that black swans did not exist.┬á

The Black Swan theory was further developed by statistician and trader Nassim Nicholas Taleb. In 2007, he published a book entitled The Black Swan: The Impact of Highly Improbable, which explained and formalized the Black Swan theory.

According to Taleb, Black Swan events generally follow three attributes:
  1. A Black Swan is an outlier. It is beyond that of regular expectations and as a result, nothing in the past could have predicted it.

  2. It always carries an extreme or significant impact.

  3. A Black Swan event, despite being an outlier and unpredictable, will certainly have a rational explanation concocted after its first occurrence, making that type of event explainable and predictable.

Examples of previous Black Swan events as described by Taleb, are the rise of the internet, the personal computer, the dissolution of the Soviet Union, and the September 11, 2001 attacks.

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