A Multi-Strategy Approach to Tail Risk Hedging
An Introduction to Tail Risk Hedging
Tail Risk Hedging: An Investment Consultant’s Perspective
Strategic Tail Risk Management: A Pension Fund’s Perspective
An Asset Allocator’s Approach to Tail Risk Hedging
Dealing with Wrong-Way Risk: A University Endowment’s Perspective
A Multi-Strategy Approach to Tail Risk Hedging
A Discretionary Approach to Tail Risk Hedging
Insuring Against Hidden Financial Catastrophe Risk
Benchmarking Convexity: Towards a Holistic Approach
Using Equity Options and Volatility to Manage Tail Risk
A Systematic Approach to Tail Risk Hedging
Tail Risk Hedging Using Convertibles
Sourcing Convexity in Asian Markets
Most investors who have looked into tail risk hedging will know that there are a plethora of tail hedging methods, each with their own strengths and limitations. This chapter aims to provide a framework for assessing and combining these strategies into an optimal allocation in the context of an institutional portfolio. A customised multi-strategy implementation of the hedging mandate to meet the desired cost and payout characteristics is then described in detail. Particular emphasis is placed on practical considerations and implementation challenges. This chapter ultimately concludes that a multi-strategy approach to tail risk hedging is not only cost-effective, but also especially robust.
While the drawbacks of vanilla hedging techniques have always been clear, it was only after the global financial crisis of 2007–09 that investors began to seriously consider specialist hedge fund managers for dedicated tail risk mandates. During the crisis, investors saw first-hand that the successful management of tail risks involves a very specific skillset, which is typically found among hedge fund managers (see Table 6.1).
While the tail risk hedge fund universe has grown in popularity and
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