Natural disasters such as earthquakes, tsunami, hurricanes, and floods as well as diseases including the pandemics of highly virulent new types of influenza could develop into tail events once their magnitude and the scope of damage surpass expectations. The same could be said for large-scale computer disruptions, acts of terrorism, and wars.
Responses to risks related to tail events are important not only as part of national economic policy but also in terms of management of the financial institutions for which many of today’s participants are responsible. Today, I will talk about how to address tail risks while focusing on the recent financial crisis and the March 11 earthquake in Japan. II.