Monetization Matters: Active Tail Risk Management and The Great Virus Crisis

Abstract

We discuss monetization strategies for both “Left” and “Right” tail risk hedging to illustrate potential benefits of active management of hedges. In particular, by including actual data from the sharp COVID-19 pandemic related market correction and subsequent rebound of 2020 we quantify how monetization strategies have the ability to improve the performance of portfolio hedges. This extends previous work on active tail risk hedging published in this journal. We conclude that active management of tail hedging can result in significant increases in the efficacy of tail hedging.

Keywords: Tail Risk Hedging, Monetization, COVID-19

JEL Classification: G01