What is a tail risk event?

In financial markets, most modern portfolio theories suggest or rather assume that probability of returns or mkt movements has a normal distribution. A tail risk, is the tail end of the distribution with the lease probability of occurring. Example of tail risk are: like in 1987 the stock market crashed more than 20% in a day, this is a tail risk which alot of mathematicians calculated to have a 1 in 10^99 probability (VERY VERY unlikely) - but it still happened.

A more recent example is the Japan Tsunami, a tail risk event. Very unexpected but caused dramatic market movements (not to mention the life changing experience for our fellow humans in Japan and their loved ones around the world).

Nassim Taleb wrote a whole book on the tail risk event called "The Black Swan" or the "Impact of the highly improbable". This impact has proven to be always underestimated by models and even the new ones that try to consider and give a certain probability for these events to happen. A decision model may include extreme market moves such as Black Monday in 1987 but would exclude the effects that followed September 11th attacks. in Taleb's opinion, models consider the "known unknowns" but ignores the "unknown unknowns".

This doesn't apply only to Finance. The security systems at Fukushima have been stress tested against Tsunamis and earth quake and the reactors were supposed to resist to that. A Tsunami by itself is a tail risk event. But something more happened: an extremely rare and highly improbable succession of events occured and even strongest stress tests couldn't consider this scenario. That's what Taleb calls the "unknown unknowns".

So what would be some of the recent tail risk events that have happened: Some that come to my mind are: recent ones - Japan Earthquake, Fukushima nuclear disaster, ME unrest..

I guess as raf mentioned above, it is probably impossible to map out potential future tail risk events, because if we could we would price in their probability of occurrence and they would not be tail risk anymore. Correct?

That's Taleb theory. Some people wont agree on it. Taleb's idea is that you would always underestimate these events. If you believe this theory, you can play it by buying far out of the money options and sit on them until something blows up and then you sell them and make a profit.