How Does a "Black Swan" Event Relate to Tail Risk? ▴ Learn

How Does a “Black Swan” Event Relate to Tail Risk?

A "Black Swan" event is an unpredictable, rare, high-impact event that, in retrospect, is often rationalized as explainable. It is the quintessential example of tail risk.

These events occur in the "tails" of the probability distribution, and a portfolio that is not explicitly hedged against them (e.g. by buying deep OTM puts) is vulnerable to massive, sudden losses when a Black Swan occurs.

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