VAR, Black Swans & Financial Crisis

Human beings try to make life predictable by using models. However, many events are completely unpredictable on the basis of past experience. Such events are called black swans. Most of economcs and econometrics is based on the idea that black swans dont exist. In some sense, everything is predicatable. VAR models can be used only if this is true. In fact events which arfe completely out of range of possibility for VAR models happen every once in a while. One needs to study the unpredictable --

Below is a newspaper article which gives some general infomration about this issue. More detailed discussion is in the book

An article showing how Godels theorems prevent quantifiablity and predicatibility of risk is AVAILABLE HERE

More references for Black Swans