Tail Risk Protection in Asset Management

42 Pages Posted: 16 Nov 2014

Date Written: November 11, 2014


Tail risk refers to the possibility that a rare event would adversely affect the value of a portfolio in a significant manner. It became much more relevant due to recent periods of strong market turbulence.

We describe how to quantify such risk, which tail risk protection strategies were considered in the literature, their effectiveness and associated costs. We also review strategies that may be profitable,and thus can be used for more than just defensive purposes.

Keywords: portfolio management, risk management, asset allocation, performance measures, risk parity, risk measures, factor investing, robust estimation, optimization, diversification, smart beta, leverage, testing, stress, tail risk, hedging

JEL Classification: C11, C12, C13, C14, C15, C51, C52, C63, G11, G12

Suggested Citation

Homescu, Cristian, Tail Risk Protection in Asset Management (November 11, 2014). Available at SSRN: https://ssrn.com/abstract=2524483 or http://dx.doi.org/10.2139/ssrn.2524483

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