Comments on: Is it possible to hedge tail risk? http://blogs.reuters.com/felix-salmon/2010/07/13/is-it-possible-to-hedge-tail-risk/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: Tracey Frago http://blogs.reuters.com/felix-salmon/2010/07/13/is-it-possible-to-hedge-tail-risk/comment-page-1/#comment-55472 Sun, 19 Oct 2014 02:43:59 +0000 http://blogs.reuters.com/felix-salmon/?p=4683#comment-55472 F*ckin’ remarkable issues here. I’m very happy to look your article. Thanks a lot and i am having a look ahead to contact you. Will you please drop me a e-mail?

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By: buy facebook fans http://blogs.reuters.com/felix-salmon/2010/07/13/is-it-possible-to-hedge-tail-risk/comment-page-1/#comment-55384 Sat, 18 Oct 2014 05:02:29 +0000 http://blogs.reuters.com/felix-salmon/?p=4683#comment-55384 Large@yahoo.com

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By: Rupert Demarcus http://blogs.reuters.com/felix-salmon/2010/07/13/is-it-possible-to-hedge-tail-risk/comment-page-1/#comment-54426 Thu, 09 Oct 2014 15:43:57 +0000 http://blogs.reuters.com/felix-salmon/?p=4683#comment-54426 I’m very happy to read this. This is the kind of manual that needs to be given and not the random misinformation that is at the other blogs. Appreciate your sharing this greatest doc.

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By: Nicoli1020 http://blogs.reuters.com/felix-salmon/2010/07/13/is-it-possible-to-hedge-tail-risk/comment-page-1/#comment-16880 Mon, 19 Jul 2010 17:28:14 +0000 http://blogs.reuters.com/felix-salmon/?p=4683#comment-16880 Wearing a bullet proof vest everyday is a sure way to reduce the risk of a mortal bullet wound to the chest, however, staying inside all day would even be better.

Of course this analogy does not profit you much…the better strategy is learning how to “dodge” bullets. My 8 year old understands moving averages (not to start a discussion on MAs) and this could have curtailed a lot of loss if one simply “dodged” the bullet.

These discussions can be of great help to new investors, but some times its best to keep it simple.

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By: Jwsampair http://blogs.reuters.com/felix-salmon/2010/07/13/is-it-possible-to-hedge-tail-risk/comment-page-1/#comment-16875 Mon, 19 Jul 2010 04:00:38 +0000 http://blogs.reuters.com/felix-salmon/?p=4683#comment-16875 What if there is a lengthy period of time without a low probability disaster? This tends to happen for years or decades between disasters, so allocating a portion of assets to this and watching it disappear every six years waiting for an event sounds throwing good money after bad. Accept it will happen and have plenty of liquid capital that can be used then to take advantage of this event when it happens. Rather than spend it on risk mitigation of an event that isn’t likely to happen perhaps put that money aside for the pounce on the opportunity when it does.

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By: sean_from_NZ http://blogs.reuters.com/felix-salmon/2010/07/13/is-it-possible-to-hedge-tail-risk/comment-page-1/#comment-16853 Fri, 16 Jul 2010 23:34:52 +0000 http://blogs.reuters.com/felix-salmon/?p=4683#comment-16853 You omit the other big problem in tail risk, which is credit risk.

If everything *really* goes off the rails will the institutions on the losing end of these bets still be solvent?

Also, someone truly serious about managing tail risk should probably have a decent civil defence plan for their family with stores of food and water (and some places, heating oil) to manage natural disaster. Sure it’s unlikely to be needed – but there’s a reasonable chance that at some point in your lifetime it will be. Financial crises aren’t the only things with major impact that strike rarely.

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By: ToulouseLautrec http://blogs.reuters.com/felix-salmon/2010/07/13/is-it-possible-to-hedge-tail-risk/comment-page-1/#comment-16803 Fri, 16 Jul 2010 05:26:47 +0000 http://blogs.reuters.com/felix-salmon/?p=4683#comment-16803 “The correlation between stocks and volatility is very low, at -0.65.”

What? According to my understanding of correlations that’s pretty high, but negative and that’s why – as you said:
“when stocks crash … volatility spikes”

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By: misterxroboto http://blogs.reuters.com/felix-salmon/2010/07/13/is-it-possible-to-hedge-tail-risk/comment-page-1/#comment-16742 Wed, 14 Jul 2010 20:52:14 +0000 http://blogs.reuters.com/felix-salmon/?p=4683#comment-16742 “If they don’t, well, at least you still have 90% of your money in Treasury bills. But that kind of strategy is much harder to pull off if the bulk of your money is in stocks rather than risk-free investments.”

i find it deeply troublesome that you think T-bills are “risk free.” free from credit risk, sure. but inflation? not even close.

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By: Danny_Black http://blogs.reuters.com/felix-salmon/2010/07/13/is-it-possible-to-hedge-tail-risk/comment-page-1/#comment-16734 Wed, 14 Jul 2010 18:17:08 +0000 http://blogs.reuters.com/felix-salmon/?p=4683#comment-16734 By the way there is one sure fire way to make money, short an asset class when Pension Funds start to pile in and double up that short when those products start to get sold to the retail public!

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By: Danny_Black http://blogs.reuters.com/felix-salmon/2010/07/13/is-it-possible-to-hedge-tail-risk/comment-page-1/#comment-16732 Wed, 14 Jul 2010 18:15:33 +0000 http://blogs.reuters.com/felix-salmon/?p=4683#comment-16732 Technically the absolute value of the correlations of returns goes to 1 in a crisis.

You nailed why these “black swan” funds tend to massively underperform – because knowing what is going to crash in a crisis is hard to know in advance and staying solvent whilst making those bets is hard too. Making a non-time sensitive, more generalised bearish bet is near-on impossible in vanilla products and using a customised product exposes you to counterparty risk – assuming you can even make the trade. The fact is that to get any sort of consistent super-normal return you need to take risks. The key is knowing what risks you are taking and having a view on the correct price for that risk.

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