Chapter 24

Tail Risk Protection for Funds of Hedge Funds

Oliver A. Schwindler, HF-Analytics GmbH, Bamberg, Germany

Chapter Outline

24.1 Introduction

24.2 VIX, VIX Futures, VIX Options, and the VVIX

24.3 Tail Risk Hedging

24.4 Tail Risk Protection for FoHFs



24.1 Introduction

The events unfolding during the last decade clearly show the importance of controlling portfolio exposures to fat-tail events like the capital markets turmoil after the bankruptcy of Lehman Brothers and its contagion effects on worldwide financial markets. Although funds of hedge funds (FoHFs) were supposed to be absolute return funds, the financial crisis in 2008 clearly shows that these FoHFs are not immune to tail risk events.

Basically, there are three ...

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