Desision making around black swan events

Abstract

The Black Swan event is a term introduced by Nassim Nicholas Taleb andrepresents an event with three characteristics: rare,has an extreme impact and retrospective (though not prospective) predictability.In other words,it is an unpredictable event as no one can predict it by forecasting.Examples of Black Swan events include:The Covid-19, the subprime crisis of 2008 and the great recession of 1929. Inthis study, we will presentBlack Swan events in the economics context and discuss the reason why these eventsare inducing a major problem of predictability in Econometrics. Our analyze will be based on GARCH model, with the application to OPEC Crude Oil prices. Our purpose is to analyze the volatility of the oil market around Black Swan event and todetermine whether sophisticated models, such as GARCH,can predict unpredictable events.