Black Swans

  • No one ever thought GIC defaults could occur.
  • No one thought that the leading insurance companies that were carrying AAA ratings could default in a short period of time.

-- Murray L. Becker

1999 - Insurance Company Failures of the Early 1990s-Have We Learned Anything?, Society of Actuaries

The Black Swan: The Impact of the Highly Improbable is a 2007 book by author and former options trader Nassim Nicholas Taleb. The book focuses on the extreme impact of rare and unpredictable outlier events—and the human tendency to find simplistic explanations for these events, retrospectively. Taleb calls this the Black Swan theory. (Wikipedia)

My last point is beyond interest rate risk.

  • The credit crunch was an event risk in the credit markets.
  • Even if you had the latest and greatest interest-rate-risk model, it did not envision this type of event risk.
  • The warning is to be careful for these "other risks."
  • When you think you understand everything that can happen, something new happens.



  • Unknown unknown risks are the Black Swans, things that happen but cannot be prepared for.
  • Unknown knowns are another form of emerging risk that reflects ignorance of the future.
    • This can reflect instances where historical data is not predictive, but also includes risks without data where a practitioner or theorist is not able to provide useful techniques to analyze the risk in the future.
  • A risk may be an unknown known for one analyst and a known known for another.1 (p5)

2018 - 11th Survey of Emerging Risks, Society of Actuaries - 138p