ABSTRACT
Black Swans are rare but catastrophic events. They are famously difficult to assess using standard measures of risk (Posner, 2004), and arise from financial innovation that causes widespread volatility and default (Chichilnisky and Wu, 2006). It is well known that market behavior focuses on short term and immediate risks, and seldom considers system-wide risks that are infrequent but potentially catastrophic. These are Black Swans and impact the economy as a whole. An ongoing puzzle is whether it is possible to benefit from market trading and innovation without the risk of Black Swans.
