In recent years, future risks have been in the focus of contemporary business world. The estimation of expected and unexpected losses which can be caused by those emerging risks is extremely challenging since their amplitude is typically unknown and difficult to predict.[1]
Predictability of the future is one of the main conditions of prevention of crisis ans ensuribg necessary resistance to their negative effects. But it is significantly decreased due to the existence of uncertainty in the economic environment.[2]
In these conditions of uncertainty, it is hard to predict any unexpected event. But once it occurs with a significant negative impact, it is called "the black swan event".
What is a black swan? For centuries it was assumed in Europe that all swans were white. But then in the 17th century, a Dutch explorer observed a black swan in Australia. Before his observation, the phrase "black swan" was used as a metaphor for something that could not exist.[3]
In finance, a black swan event is a phrase commonly used to discribe an extremely negative event or occurrence that is impossible to predict.
The concept of black swan event was known for the first time by the statisticien Nassim Nicholas Taleb in his books "Fooled by randomness"[4] (2001), "The black swan: the impact of the highly improbable" (2007)[5]. According to him, the black swan idea is based on the structure of randomness in empirical reality, and the combination of low predictability and large impact makes it a great puzzle.[6]
According to Taleb, a black swan event is an event distinguised by three key properties:[7]
ü It is a rare event that is so hard to predict, outside of the realm of regular expectations.
ü It carries an extreme impact.
ü After the fact, human nature makes us concoct explanations for its occurence, making it explainable and predictable.
[1] Vesna Matic, "Emerging risks- the wave of black swan events", Vol 45, Issue 4, Bankarstvo, 2016, p53
[2] Igor Vladislavovitch Ponkin," "Black swan" event as manifestation of uncertainties in public administration", Vol 10, No 2, 2019, Mediterranean Journal of Social Sciences, p10
[3] Martin Kramer, "Seven black swans in the middle east", 2019, p1
[4]https://corporatefinanceinstitute.com/resources/knowledge/finance/black-swan-event/?fbclid=IwAR1DevAo7Ft5XQBqbDuklUdrvmmwVPhCRkrD36XskCiQ6RjHQoPkK53ox00
[5] Martin Kramer, OpCit p1
[6] Nassim Nicholas Taleb, "The black swan: the impact of the highly improbable", New York, Random House, 2007, p18
[7] Jochen Runde, "Dissecting the black swan", Critical Review, Vol 21, No 4, 2009, p 493
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Mohamed Benbouziane To say if the Corona outbreak is a blackswan or not, we should highlight the three properties that was mentioned by Taleb, i will comment on the first two , first Taleb Says it is a rare event, but we did witness multiple viral spreads in the last 20 year ( Sars, Influenza , Ebola, and now Corona ), Second Key is the Impact, The Corona pandamy did shock the demand and the supply by january and drove the economy to shrink, but due to the technology many industries recovered remotely after, which did minimize the losses a bit, keeping in mind the Corona Virus did target the aging population more, causing huge number of deaths, that outcome i believe it will turn out good to the economy of Europe after a year or two, the real black swan was the crush of 2008, which lead us to another question , does the impact of 2008 crise is same as the impact of corona pandamy ?
The black swan is an unlikely event (with high entropy) - which makes it significant for the market and causes a sharp change in quotes. Covid is not such an event.
