TAIL RISK HEDGING: Creating Robust Portfolios for Volatile Markets

Hardcover | January 20, 2014

byVineer Bhansali

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"TAIL RISKS" originate from the failure of mean reversion and the idealized bell curve of asset returns, which assumes that highly probable outcomes occur near the center of the curve and that unlikely occurrences, good and bad, happen rarely, if at all, at either "tail" of the curve. Ever since the global financial crisis, protecting investments against these severe tail events has become a priority for investors and money managers, but it issomething Vineer Bhansali and his team at PIMCO have been doing for over a decade. In one of the first comprehensive and rigorous books ever written on tail risk hedging, he lays out a systematic approach to protecting portfolios from, and potentially benefiting from, rare yet severe market outcomes.

Tail Risk Hedging is built on the author'spractical experience applying macroeconomic forecasting and quantitative modeling techniques across asset markets. Using empirical data and charts, he explains the consequences of diversification failure in tail events andhow to manage portfolios when this happens. He provides an easy-to-use, yet rigorous framework for protecting investment portfolios against tail risk and using tail hedging to play offense. Tail Risk Hedging exploreshow to:

  • Generate profits from volatility and illiquidity during tail-risk events in equity and credit markets
  • Buy attractively priced tail hedges that add value to a portfolio and quantify basis risk
  • Interpret the psychology of investors in option pricing and portfolio construction
  • Customize explicit hedges for retirement investments
  • Hedge risk factors such as duration risk and inflation risk

    Managing tail risk is today's most significant development in risk management, and this thorough guide helps you access every aspect of it. With the time-tested and mathematically rigorous strategies described here, including pieces of computer code, you get access to insights to help mitigate portfolio losses in significant downturns, create explosive liquidity while unhedged participants are forced to sell, and create more aggressive yet tail-risk-focused portfolios. The book also gives you a unique, higher level view of how tail risk is related to investing in alternatives, and of derivatives such as zerocost collars and variance swaps. Volatilityand tail risks are here to stay, and so should your clients' wealth when you use Tail Risk Hedging for managing portfolios.

    PRAISE FOR TAIL RISK HEDGING:

    "Managing, mitigating, and even exploiting the risk of bad times are the most important concerns in investments. Bhansali puts tail risk hedging and tail risk management under a microscope--pricing, implementation, and showing how we can fine-tune our risk exposures, which are all crucial ways in how we can better weather our bad times." -- ANDREW ANG, Ann F. Kaplan Professor of Business at Columbia University

    "This book is critical and accessible reading for fiduciaries, financial consultants and investors interested in both theoretical foundations and practical considerations for how to frame hedging downside risk in portfolios. It is a tremendous resource for anyoneinvolved in asset allocation today." -- CHRISTOPHER C. GECZY, Ph.D., Academic Director, Wharton Wealth Management Initiative and Adj. Associate Professor of Finance, The Wharton School

    "Bhansali's book demonstrates how tail risk hedging can work, be concretely implemented, and lead to higher returns so that it is possible to have your cake and eat it too! A must read for the savvy investor." -- DIDIER SORNETTE, Professor on the Chair of Entrepreneurial Risks, ETH Zurich

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From the Publisher

"TAIL RISKS" originate from the failure of mean reversion and the idealized bell curve of asset returns, which assumes that highly probable outcomes occur near the center of the curve and that unlikely occurrences, good and bad, happen rarely, if at all, at either "tail" of the curve. Ever since the global financial crisis, protecting ...

From the Jacket

Investors know that just one severe market shock may be terminal for a financial plan. To retain a portfolio's hard-won value, asset managers need to supplement traditional risk management paradigms with a forward-thinking, "just-in-case" strategy. The answer is TailRisk Hedging.No one is better qualified to offer this first authoritat...

VINEER BHANSALI, PH.D., is a managing director and portfolio manager in the Newport Beach office of PIMCO, where he oversees the company's quantitative investment portfolios.

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Format:HardcoverDimensions:9.3 × 6.4 × 1 inPublished:January 20, 2014Publisher:McGraw-Hill EducationLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0071791752

ISBN - 13:9780071791755

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