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Black Swan Theory

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An introductory presentation on Black Swan Theory (a la Nassim Taleb) and its relevance to the financial industry.

An introductory presentation on Black Swan Theory (a la Nassim Taleb) and its relevance to the financial industry.

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Transcript

  • 1. Black Swan Theory
    Prepared for Alice Tanada
    24 August 2009
  • 2. Origin
  • 3. Black Swan Theory
    Introduced by Nassim Nicholas Taleb
    Unlike the “Black Swan Problem”
    Ludic Fallacy
  • 4. Black Swan Event
    A Black Swan event:
    is a surprise
    has a major impact
    is rationalized by hindsight after the occurrence as if it was expected
    Examples: 9/11, Internet, WWI, etc.
    The “unknown unknowns”
  • 5. “There are known knowns. There are things we know that we know. There are known unknowns. That is to say, there are things that we now know we don’t know. But there are also unknown unknowns. There are things we do not know we don’t know.”
  • 6. Ludic Fallacy
    “…misuse of of games to model real-life situations.”
    Key ideas:
    Impossible to possess all information
    Butterfly effect
    Empirical data unreliable
    Examples: fixed coin, job interview, stock return
  • 7. Taleb Himself
  • 8. Relevance
    “Impossible is nothing.”
    “Past performance may not be indicative of future results.”
    Black Swan Protection Protocol™ – 115% in 2008
  • 9. Thank You
    Ben Yang
    24 August 2009