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Tail Risk Mitigation With Managed Volatility Strategies
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Book Synopsis Tail Risk Mitigation with Managed Volatility Strategies by : Anna Dreyer
Download or read book Tail Risk Mitigation with Managed Volatility Strategies written by Anna Dreyer and published by . This book was released on 2019 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: Managed volatility strategies adjust market exposure in inverse relation to a risk estimate, to stabilize realized portfolio volatility through time. Our paper examines strategy performance from an investment practitioner perspective. Using long-term data from the Standard & Poor's 500, we show that these strategies offer an improvement in risk-adjusted return compared with a buy-and-hold benchmark, on average, but with some variation. Managed volatility strategies achieve robust tail-risk reduction while also enhancing skewness. These return normalization features are inherently linked to the nature of the volatility stabilization mechanism. We illustrate them via utility-based metrics that reward the tail-risk reduction emanating from volatility stabilization. These enhancements are economically meaningful for many time horizons and holding period combinations, and they remain once transaction costs have been included, suggesting a durable and tangible value-add from managed volatility strategies. They also suggest a more appropriate way to measure the performance improvements of tail-risk-mitigating strategies.
Book Synopsis TAIL RISK HEDGING: Creating Robust Portfolios for Volatile Markets by : Vineer Bhansali
Download or read book TAIL RISK HEDGING: Creating Robust Portfolios for Volatile Markets written by Vineer Bhansali and published by McGraw Hill Professional. This book was released on 2013-12-27 with total page 272 pages. Available in PDF, EPUB and Kindle. Book excerpt: "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 is something 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's practical 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 and how 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 explores how 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. Volatility and 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 anyone involved 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
Book Synopsis Tail Risk Hedging by : Andrew Rozanov
Download or read book Tail Risk Hedging written by Andrew Rozanov and published by . This book was released on 2014 with total page 304 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Risk On, Risk Off by : Michael McCarty
Download or read book Risk On, Risk Off written by Michael McCarty and published by Bloomberg Press. This book was released on 2015-11-16 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The essential pre-entry guide to volatility trading, from the top market expert Risk On, Risk Off shows active traders how to profit from the profusion of new volatility-based products. Leading expert Michael McCarty provides in-depth explanation of poorly understood aspects of volatility-based instruments, showing you how they can be used to forecast markets, trade, and hedge. Coverage includes details on both new and traditional measures of volatility, the structure and mechanics of new volatility tools, and how market participants at different levels can use these tools to invest more effectively. By combining historical data with analysis, this book outlines a taxonomy of how volatility measures provide clues to coming market behavior, and provides a detailed dissection of how these new instruments work. You will gain the insight they need to use these tools confidently and avoid unexpected outcomes. At the end of 2010, the market experienced a flood of Exchange Traded Funds and Exchange Traded Notes. Today, there are at least thirteen Exchange Traded Products with over $2 billion in assets, and similar products are being developed in other major asset classes. This book discusses how these new products can lead to profit, and why money managers should start hedging volatility risk. Learn how volatility measures reflect market sentiment and directional bias Understand how VIX options, futures, and exchange-traded notes work Analyze the brief history of trading volatility-based instruments Smooth returns at any level of market participation Trading and hedging volatility is an increasingly important topic in the wake of the 2008 financial crisis, and the market for trading volatility as an asset is growing rapidly and regularly setting new daily volume trading records. For the active trader looking to enter the volatility markets, Risk On, Risk Off provides essential information from the leading volatility expert.
Book Synopsis How the Risk Measures Play Important Roles for Tail Risk Management and Diversification by : Takuo Higashide
Download or read book How the Risk Measures Play Important Roles for Tail Risk Management and Diversification written by Takuo Higashide and published by . This book was released on 2019 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the world of investment, the subject of building a portfolio concerning tail risk is still one of the frequently discussed subjects and unquestionably vital for investors. This paper seeks to examine how the risk measures, lower tail-dependence based on the copulas approach and Conditional Value-at-Risk (CVaR), affect the portfolio strategies and play important roles for tail risk management and diversify the portfolio. By using these two risk measures mentioned above, two different types of risk-based portfolios are proposed that consider for the tail risks: 1) Minimum-lower tail-dependence portfolio (RMTP) and 2) Risk Parity Portfolio based on Conditional Value-at-Risk (CRPP). The simulation results showed how those two risk-based portfolios, RMTP and CRPP, work effectively in multi-asset allocation framework with 6 assets: stocks and sovereign bonds of Japan, United States and Germany, based on the monthly rebalance rule, using 2004-2018 sample period. One of the key findings were that both RMTP and CRPP strategies delivered better performances compared with the traditional portfolio strategies in terms of sharp ratio: 1) RMTP yielded 0.92 and 2) CRPP yielded 0.99 (by adding an appropriate risk reduction to this portfolio, the sharp ratio went up to 1.76). In addition, both of these two strategies also worked effectively in terms of the average of maximum monthly drawdown related to the effect of the tail risk: 1) RMTP by 1.80% and 2) CRPP by 1.74% (by adding an appropriate risk reduction to this portfolio, maximum drawdown decreased to 0.78%). Furthermore, this paper also studies an enhancement strategy based on Risk Parity Portfolios (RPP) focusing on and using co-integration relationship (co-integration approach). According to the simulation result, this proposed enhancement strategy has a potential to yield roughly 4.5% return. Finally, this paper presents the explicit derivation of lower tail-dependence and co-integration approach.
Book Synopsis Strategic Risk Management by : Campbell R. Harvey
Download or read book Strategic Risk Management written by Campbell R. Harvey and published by John Wiley & Sons. This book was released on 2021-05-04 with total page 262 pages. Available in PDF, EPUB and Kindle. Book excerpt: STRATEGIC RISK MANAGEMENT Having just experienced a global pandemic that sent equity markets into a tailspin in March 2020, risk management is a more relevant topic than ever. It remains, however, an often poorly understood afterthought. Many portfolios are designed without any thought given to risk management before they are handed off to a dedicated—but separate—risk management team. In Strategic Risk Management: Designing Portfolios and Managing Risk, Campbell R. Harvey, Sandy Rattray, and Otto Van Hemert deliver a reimagining of the risk management process. The book envisions a marriage between the investment and risk processes, an approach that has proven successful at the world’s largest publicly listed hedge fund, Man Group. The authors provide readers with a new framework for portfolio design that includes defensive strategies, drawdown risk controls, volatility targeting, and actively timing rebalancing trades. You will learn about how the book’s new approach to risk management fared during the recent market drawdown at the height of the COVID-19 pandemic. You will also discover why the traditional risk weighting approach only works on certain classes of assets. The book shows you how to accurately evaluate the costs of defensive strategies and which ones offer the best and most cost-effective protection against market downturns. Finally, you will learn how to obtain a more balanced return stream by targeting volatility rather than a constant notional exposure and gain a deeper understanding of concepts like portfolio rebalancing. Perfect for people working in the asset management industry and financial policy makers, Strategic Risk Management: Designing Portfolios and Managing Risk will also earn a place in the libraries of economics and finance scholars, as well as casual readers who take an active approach to investing in their savings or pension assets. PRAISE FOR STRATEGIC RISK MANAGEMENT “Strategic Risk Management shows how to fully embed risk management into the portfolio management process as an equal partner to alpha. This should clearly be best practice for all asset managers.” —Jase Auby, Chief Investment Officer, the Teacher Retirement System of Texas “This book shows the power of integrating risk and investment management, rather than applying risk management as an afterthought to satisfy set limits. I was pleased to shepherd some of the key ideas in this book through the publication process at The Journal of Portfolio Management.” —Frank J. Fabozzi, Editor, The Journal of Portfolio Management “Financial markets today are quite different from those of the last century. Understanding leverage, correlations, tails, and other risk parameters of a portfolio is at least as important as work on signals and alpha. In that sense, bringing risk management from ‘control’ to ‘front office’ should be a priority for asset managers. This book explains how to do it.” —Marko Kolanovic, Chief Global Market Strategist, J.P. Morgan A powerful new approach to risk management in volatile and uncertain markets While the COVID-19 pandemic threw the importance of effective risk management into sharp relief, many investment firms hang on to a traditional and outdated model of risk management. Using siloed and independent portfolio management and risk monitoring teams, these firms miss out on the opportunities presented by integrated risk management. Strategic Risk Management: Designing Portfolios and Managing Risk delivers a fresh approach to risk management in difficult market conditions. The accomplished author team advocates for the amalgamation of portfolio design and risk monitoring teams, incorporating risk management into every aspect of portfolio design. The book provides a roadmap for the crucial aspects of portfolio design, including defensive strategies, drawdown risk controls, volatility targeting, and actively timing rebalancing trades. You will discover how these techniques helped the authors achieve remarkable results during the market drawdown in the midst of the COVID-19 pandemic and how they can help you protect your assets against unpredictable—but inevitable—future bear markets. Ideal for professionals in the asset management industry, Strategic Risk Management: Designing Portfolios and Managing Risk is a valuable resource for financial policy makers, economics and finance scholars, and anyone with even a passing interest in taking an active role in investing for their future.
Book Synopsis Dynamic Hedging by : Nassim Nicholas Taleb
Download or read book Dynamic Hedging written by Nassim Nicholas Taleb and published by John Wiley & Sons. This book was released on 1997-01-14 with total page 536 pages. Available in PDF, EPUB and Kindle. Book excerpt: Destined to become a market classic, Dynamic Hedging is the only practical reference in exotic options hedgingand arbitrage for professional traders and money managers Watch the professionals. From central banks to brokerages to multinationals, institutional investors are flocking to a new generation of exotic and complex options contracts and derivatives. But the promise of ever larger profits also creates the potential for catastrophic trading losses. Now more than ever, the key to trading derivatives lies in implementing preventive risk management techniques that plan for and avoid these appalling downturns. Unlike other books that offer risk management for corporate treasurers, Dynamic Hedging targets the real-world needs of professional traders and money managers. Written by a leading options trader and derivatives risk advisor to global banks and exchanges, this book provides a practical, real-world methodology for monitoring and managing all the risks associated with portfolio management. Nassim Nicholas Taleb is the founder of Empirica Capital LLC, a hedge fund operator, and a fellow at the Courant Institute of Mathematical Sciences of New York University. He has held a variety of senior derivative trading positions in New York and London and worked as an independent floor trader in Chicago. Dr. Taleb was inducted in February 2001 in the Derivatives Strategy Hall of Fame. He received an MBA from the Wharton School and a Ph.D. from University Paris-Dauphine.
Book Synopsis Risk-Based and Factor Investing by : Emmanuel Jurczenko
Download or read book Risk-Based and Factor Investing written by Emmanuel Jurczenko and published by Elsevier. This book was released on 2015-11-24 with total page 488 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book is a compilation of recent articles written by leading academics and practitioners in the area of risk-based and factor investing (RBFI). The articles are intended to introduce readers to some of the latest, cutting edge research encountered by academics and professionals dealing with RBFI solutions. Together the authors detail both alternative non-return based portfolio construction techniques and investing style risk premia strategies. Each chapter deals with new methods of building strategic and tactical risk-based portfolios, constructing and combining systematic factor strategies and assessing the related rules-based investment performances. This book can assist portfolio managers, asset owners, consultants, academics and students who wish to further their understanding of the science and art of risk-based and factor investing. Contains up-to-date research from the areas of RBFI Features contributions from leading academics and practitioners in this field Features discussions of new methods of building strategic and tactical risk-based portfolios for practitioners, academics and students
Book Synopsis Tail Risk Management for Multi-Asset Multi-Factor Strategies by : David Chambers
Download or read book Tail Risk Management for Multi-Asset Multi-Factor Strategies written by David Chambers and published by . This book was released on 2019 with total page 9 pages. Available in PDF, EPUB and Kindle. Book excerpt: Multi-asset multi-factor portfolio allocation is typically centred around a risk-based allocation paradigm, often striving for maintaining equal volatility risk budgets. Given that the common factor ingredients can be highly skewed, we specifically incorporate the notion of tail risk management into the construction of multi-asset multi-factor portfolios. Indeed, we find that the minimum CVaR concentration approach of Boudt, Carl and Peterson (2013) effectively mitigates the dangers of tail risk concentrations. Yet, diversifying across multiple assets and style factors can be in and of itself a good means of tail risk management, irrespective of the risk-based allocation technique employed.
Book Synopsis Tail Risk Killers: How Math, Indeterminacy, and Hubris Distort Markets by : Jeffrey McGinn
Download or read book Tail Risk Killers: How Math, Indeterminacy, and Hubris Distort Markets written by Jeffrey McGinn and published by McGraw Hill Professional. This book was released on 2012-01-06 with total page 385 pages. Available in PDF, EPUB and Kindle. Book excerpt: Reshape your investing strategy for an increasingly uncertain world “An engrossing, fast-paced, terrific read for anyone interested in the financial imbalances due to too much reliance on math and too little respect for indeterminacy.” —Tyler Durden, ZeroHedge.com The world does not unfold according to a fixed set of rules. It is a dynamical system whose evolution looks like a bell curve with fat “tails.” The same is true of financial markets. However, every day we rely on the certainty and precision of mathematical strategies that assume the contrary to control and grow wealth in markets. Tail Risk Killers shows you how the rigidity of model-based thinking has led to the fragility of today’s global financial marketplace, and it explains how to use adaptive trading strategies to mitigate risk in impending market conditions. Risk management veteran Jeff McGinn pokes holes in prevalent assumptions about how financial markets act that tend to underestimate the likelihood of occurrence of extreme events. Through clear, conversational writing, real-world anecdotes, and easy-tofollow formulas, he provides a glimpse into the way tomorrow’s successful traders are viewing financial markets—with an eye for probability distributions. While illustrating how to protect your assets from tail risk, he shows you how to: Implement the six axioms for risk management Prepare for the unintended consequences of central banks suppressing tail risk Identify and avoid the dark risks hidden in today’s derivative-laden financial system Anticipate the fate of credit default swaps that may not face extinction McGinn argues that the intervention of central banks has robbed global markets of their opportunities to adapt, but this highly relevant book shows you that it is not too late to adapt your portfolio to survive the extreme events that happen more often than popular financial models suggest. Tail Risk Killers helps you discover useful information and processes beyond the focus of industry standards, helps you connect the dots of evolving trading strategies and time your next trade for maximum profitability.
Book Synopsis Strategic Risk Management by : Campbell R. Harvey
Download or read book Strategic Risk Management written by Campbell R. Harvey and published by John Wiley & Sons. This book was released on 2021-05-04 with total page 262 pages. Available in PDF, EPUB and Kindle. Book excerpt: STRATEGIC RISK MANAGEMENT Having just experienced a global pandemic that sent equity markets into a tailspin in March 2020, risk management is a more relevant topic than ever. It remains, however, an often poorly understood afterthought. Many portfolios are designed without any thought given to risk management before they are handed off to a dedicated—but separate—risk management team. In Strategic Risk Management: Designing Portfolios and Managing Risk, Campbell R. Harvey, Sandy Rattray, and Otto Van Hemert deliver a reimagining of the risk management process. The book envisions a marriage between the investment and risk processes, an approach that has proven successful at the world’s largest publicly listed hedge fund, Man Group. The authors provide readers with a new framework for portfolio design that includes defensive strategies, drawdown risk controls, volatility targeting, and actively timing rebalancing trades. You will learn about how the book’s new approach to risk management fared during the recent market drawdown at the height of the COVID-19 pandemic. You will also discover why the traditional risk weighting approach only works on certain classes of assets. The book shows you how to accurately evaluate the costs of defensive strategies and which ones offer the best and most cost-effective protection against market downturns. Finally, you will learn how to obtain a more balanced return stream by targeting volatility rather than a constant notional exposure and gain a deeper understanding of concepts like portfolio rebalancing. Perfect for people working in the asset management industry and financial policy makers, Strategic Risk Management: Designing Portfolios and Managing Risk will also earn a place in the libraries of economics and finance scholars, as well as casual readers who take an active approach to investing in their savings or pension assets. PRAISE FOR STRATEGIC RISK MANAGEMENT “Strategic Risk Management shows how to fully embed risk management into the portfolio management process as an equal partner to alpha. This should clearly be best practice for all asset managers.” —Jase Auby, Chief Investment Officer, the Teacher Retirement System of Texas “This book shows the power of integrating risk and investment management, rather than applying risk management as an afterthought to satisfy set limits. I was pleased to shepherd some of the key ideas in this book through the publication process at The Journal of Portfolio Management.” —Frank J. Fabozzi, Editor, The Journal of Portfolio Management “Financial markets today are quite different from those of the last century. Understanding leverage, correlations, tails, and other risk parameters of a portfolio is at least as important as work on signals and alpha. In that sense, bringing risk management from ‘control’ to ‘front office’ should be a priority for asset managers. This book explains how to do it.” —Marko Kolanovic, Chief Global Market Strategist, J.P. Morgan A powerful new approach to risk management in volatile and uncertain markets While the COVID-19 pandemic threw the importance of effective risk management into sharp relief, many investment firms hang on to a traditional and outdated model of risk management. Using siloed and independent portfolio management and risk monitoring teams, these firms miss out on the opportunities presented by integrated risk management. Strategic Risk Management: Designing Portfolios and Managing Risk delivers a fresh approach to risk management in difficult market conditions. The accomplished author team advocates for the amalgamation of portfolio design and risk monitoring teams, incorporating risk management into every aspect of portfolio design. The book provides a roadmap for the crucial aspects of portfolio design, including defensive strategies, drawdown risk controls, volatility targeting, and actively timing rebalancing trades. You will discover how these techniques helped the authors achieve remarkable results during the market drawdown in the midst of the COVID-19 pandemic and how they can help you protect your assets against unpredictable—but inevitable—future bear markets. Ideal for professionals in the asset management industry, Strategic Risk Management: Designing Portfolios and Managing Risk is a valuable resource for financial policy makers, economics and finance scholars, and anyone with even a passing interest in taking an active role in investing for their future.
Book Synopsis Tail Risk Management by : Frank Benham
Download or read book Tail Risk Management written by Frank Benham and published by . This book was released on 2013 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: Since the height of the Global Financial Crisis in 2008, institutional investors have spent considerable time investigating ways to limit the downside risk in their portfolios. The term “Black Swan” has been used extensively to classify hard-to-identify, but impactful, events that cause “tail risks” in investors' portfolios. Investor timeframes and constraints differ and, thus, the decision of whether and how to hedge these risks will vary for investors. In this paper, we discuss the nature of tail risks and evaluate at a high level the options available to institutional investors. We determine that managing tail risk can be done strategically or tactically, primarily through asset allocation, derivative overlay strategies, or through tail risk hedge funds. Importantly, each approach will have an associated cost, either explicit or implicit, and we discuss the trade-offs for each approach.
Book Synopsis Portfolio Construction and Tail Risk by : Chris Downing
Download or read book Portfolio Construction and Tail Risk written by Chris Downing and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In the wake of the financial crisis, investors are increasingly concerned with ways to mitigate extreme losses. We analyze various approaches to enhancing traditional portfolio construction with tail-risk control. Interestingly, we find investors have better managed tail-risk using a minimum-volatility overlay strategy than explicitly penalizing extreme losses via conditional value-at-risk (CVaR). From a practical perspective, this solution can be cheap and easy to implement because it will not result in a rebalancing of the fund, and various minimum-volatility products are readily available on the market.
Book Synopsis Adaptive Asset Allocation by : Adam Butler
Download or read book Adaptive Asset Allocation written by Adam Butler and published by John Wiley & Sons. This book was released on 2016-02-02 with total page 209 pages. Available in PDF, EPUB and Kindle. Book excerpt: Build an agile, responsive portfolio with a new approach to global asset allocation Adaptive Asset Allocation is a no-nonsense how-to guide for dynamic portfolio management. Written by the team behind Gestaltu.com, this book walks you through a uniquely objective and unbiased investment philosophy and provides clear guidelines for execution. From foundational concepts and timing to forecasting and portfolio optimization, this book shares insightful perspective on portfolio adaptation that can improve any investment strategy. Accessible explanations of both classical and contemporary research support the methodologies presented, bolstered by the authors' own capstone case study showing the direct impact of this approach on the individual investor. Financial advisors are competing in an increasingly commoditized environment, with the added burden of two substantial bear markets in the last 15 years. This book presents a framework that addresses the major challenges both advisors and investors face, emphasizing the importance of an agile, globally-diversified portfolio. Drill down to the most important concepts in wealth management Optimize portfolio performance with careful timing of savings and withdrawals Forecast returns 80% more accurately than assuming long-term averages Adopt an investment framework for stability, growth, and maximum income An optimized portfolio must be structured in a way that allows quick response to changes in asset class risks and relationships, and the flexibility to continually adapt to market changes. To execute such an ambitious strategy, it is essential to have a strong grasp of foundational wealth management concepts, a reliable system of forecasting, and a clear understanding of the merits of individual investment methods. Adaptive Asset Allocation provides critical background information alongside a streamlined framework for improving portfolio performance.
Book Synopsis Volatility Vs. Downside Risk by : Diana Barro
Download or read book Volatility Vs. Downside Risk written by Diana Barro and published by . This book was released on 2014 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: As a consequence of recent market conditions an increasing number of investors are realizing the importance of controlling tail risk to reduce drawdowns thus increasing possibilities of achieving long-term objectives. Recently, so called volatility control strategies and volatility target approaches to investment have gained a lot of interest as strategies able to mitigate tail risk and produce better risk-adjusted returns. Essentially these are rule-based backward looking strategies in which no optimization is considered. In this contribution we focus on the role of volatility in downside risk reduction and, in particular, in tail risk reduction. The first contribution of our paper is to provide a viable way to integrate a target volatility approach, into a multiperiod portfolio optimization model, through the introduction of a local volatility control approach. Our optimized volatility control is contrasted with existing rule-based target volatility strategies, in an out-of sample simulation on real data, to assess the improvement that can be obtained from the optimization process.A second contribution of this work is to study the interaction between volatility control and downside risk control. We show that combining the two tools we can enhance the possibility of achieving the desired performance objectives and, simultaneously, we reduce the cost of hedging.The multiperiod portfolio optimization problem is formulated in a stochastic programming framework that provides the necessary flexibility for dealing with different constraints and multiple sources of risk.
Book Synopsis Tail Risk Hedging and Regime Switching by : Markus Huggenberger
Download or read book Tail Risk Hedging and Regime Switching written by Markus Huggenberger and published by . This book was released on 2017 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze hedging strategies that minimize tail risk measured by Value-at-Risk (VaR) or Conditional-Value-at-Risk (CVaR). In particular, we derive first-order conditions characterizing VaR- and CVaR-minimal hedging with futures in regime-switching models. Using cross-hedging examples, we theoretically and empirically demonstrate that tail-risk-minimal strategies can noticeably deviate from standard minimum-variance policies in the presence of crash regimes. In such examples, VaR- and CVaR-minimal strategies based on regime-switching models are able to attain additional tail risk reductions, which can be confirmed by nonparametric and extreme-value-theory-based methods. These results imply that the proposed methodology for tail risk management can cut losses during financial crises and reduce capital requirements for institutional investors.
Book Synopsis Managing Extreme Financial Risk by : Karamjeet Paul
Download or read book Managing Extreme Financial Risk written by Karamjeet Paul and published by Academic Press. This book was released on 2013-10-09 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Managing Extreme Financial Risk addresses the need for better management strategies in light of increased market risk and volatility in financial institutions' revenue models. Top officials from the financial and regulatory industries point to real corporate issues, showing how institutions react to financial crises. From first-hand experiences, they explain how effective sustainability management does not just prevent being blindsided; it also leads to proactive solutions that enhance an institution's strength to weather a sudden financial crisis, add significant shareholder value, and reduce systemic risk. Readable, coherent, and logical, Managing Extreme Financial Risk shows how extreme risk needs to be handled when the cost of being wrong means the difference between life and death of the institution. Based on the firsthand experiences and perspectives of senior-level executives Concentrates on extreme risk, when the cost of being wrong is not the loss of profits, but the death of the institution Written to be easily understood without algorithms, models, and quants
