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TAIL RISK HEDGING: Creating Robust Portfolios for Volatile Markets by Vineer Bhansali

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6

Other Tail Risk Management Strategies

So far in this book I have focused on explicit options based tail risk hedging. Clearly, spending premium is not the only way to manage tail risks. In this chapter, I will discuss some other methods for tail risk management. First, I look at the qualitative tradeoffs between explicit dynamic asset allocation against explicit tail risk hedging. Next, I take a look at alternative betas such as momentum and trend following for tail risk mitigation. These strategies notably did well in the crisis of 2007–2009 as the bounds of mean reversion broke, and large trends were observed across markets. Next, I take a look at “zero premium” strategies such as costless collars and evaluate their costs and benefits. Direct ...

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