Using empirical data and charts, this book explains the consequences of diversification failure in tail events and how to manage portfolios when this happens. It provides an easy-to-use, yet rigorous framework for protecting investment portfolios against tail risk and using tail hedging to play offense.
Using empirical data and charts, this book explains the consequences of diversification failure in tail events and how to manage portfolios when this happens. It provides an easy-to-use, yet rigorous framework for protecting investment portfolios against tail risk and using tail hedging to play offense.
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.
Inhaltsangabe
Foreword by Mohamed El-Erian xi Introduction xv Acknowledgments xix Chapter 1: Introduction to Tail Risk and Tail Risk Management 1 Lessons Learned 1 Distressed Liquidation and Failure of Diversification 18 Chapter 2: Basics- Tail Risk Hedging for Defense 25 Formal Derivation of Portfolio Hedges Using Factor Hedges 30 Rolling Tail Hedges 32 Benchmarking Tail Risk Management 37 Cash Versus Explicit Tail Hedging 43 Chapter 3 Offensive Tail Risk Hedging 51 A Model to Compute the Value of Tail Hedging 56 Model Calibration 57 Chapter 4: Active Tail Risk Management 71 Creating a Long History 78 Active Monetization Rules 84 Chapter 5: Indirect Hedging and Basis Risk 93 Quantifying Basis Risk 95 Hedge Matching at the Attachment Point 98 "Soft" Indirects: Comparing Puts versus Put Spreads 104 Basis Risk from Correlated Asset Classes 107 Chapter 6: Other Tail Risk Management Strategies 129 Tail Risk Hedging versus Asset Allocation in a Multimodal World 129 The Hedging Value in Trends and Momentum 134 A Look at the Risks and Rewards of Costless Collars 138 Variance Swaps and Direct Volatility-Based Hedging 141 Dynamic Hedging 146 Chapter 7: A Behavioral Perspective on Tail Risk Hedging 153 Narrow Framing and Tail Risk Hedging 154 Pricing of Put Options on a Standalone Basis 161 Multiple Equilibria and Expected Returns on Tail Hedges 165 Precommitment and Procyclicality 169 Chapter 8: Tail Risk Hedging for Retirement Investments 179 Chapter 9: Inflation and Duration Tail Risk Hedging 193 Hedging at the Money Inflation versus Inflation Tails 195 Tail Hedging Realized Inflation versus Inflation Expectations 198 Inflation Dynamics and Inflation Spikes 202 Framework for Inflation Tail Hedging 210 Benchmarking Inflation Tail Hedges 211 Pricing of Inflation Options 212 Options on CPI 212 Options on the Breakeven Inflation Rate 215 Indirect Inflation Tail Risk Hedging and Basis Risk 217 Pricing of Tail Interest-Rate Swaptions 219 Indirect Hedges 221 Example of Gold Options as Proxy Tail Hedge 222 Notes 225 Bibliography 231 Index 235
Foreword by Mohamed El-Erian xi Introduction xv Acknowledgments xix Chapter 1: Introduction to Tail Risk and Tail Risk Management 1 Lessons Learned 1 Distressed Liquidation and Failure of Diversification 18 Chapter 2: Basics- Tail Risk Hedging for Defense 25 Formal Derivation of Portfolio Hedges Using Factor Hedges 30 Rolling Tail Hedges 32 Benchmarking Tail Risk Management 37 Cash Versus Explicit Tail Hedging 43 Chapter 3 Offensive Tail Risk Hedging 51 A Model to Compute the Value of Tail Hedging 56 Model Calibration 57 Chapter 4: Active Tail Risk Management 71 Creating a Long History 78 Active Monetization Rules 84 Chapter 5: Indirect Hedging and Basis Risk 93 Quantifying Basis Risk 95 Hedge Matching at the Attachment Point 98 "Soft" Indirects: Comparing Puts versus Put Spreads 104 Basis Risk from Correlated Asset Classes 107 Chapter 6: Other Tail Risk Management Strategies 129 Tail Risk Hedging versus Asset Allocation in a Multimodal World 129 The Hedging Value in Trends and Momentum 134 A Look at the Risks and Rewards of Costless Collars 138 Variance Swaps and Direct Volatility-Based Hedging 141 Dynamic Hedging 146 Chapter 7: A Behavioral Perspective on Tail Risk Hedging 153 Narrow Framing and Tail Risk Hedging 154 Pricing of Put Options on a Standalone Basis 161 Multiple Equilibria and Expected Returns on Tail Hedges 165 Precommitment and Procyclicality 169 Chapter 8: Tail Risk Hedging for Retirement Investments 179 Chapter 9: Inflation and Duration Tail Risk Hedging 193 Hedging at the Money Inflation versus Inflation Tails 195 Tail Hedging Realized Inflation versus Inflation Expectations 198 Inflation Dynamics and Inflation Spikes 202 Framework for Inflation Tail Hedging 210 Benchmarking Inflation Tail Hedges 211 Pricing of Inflation Options 212 Options on CPI 212 Options on the Breakeven Inflation Rate 215 Indirect Inflation Tail Risk Hedging and Basis Risk 217 Pricing of Tail Interest-Rate Swaptions 219 Indirect Hedges 221 Example of Gold Options as Proxy Tail Hedge 222 Notes 225 Bibliography 231 Index 235
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