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Tail Risk Hedging: Theory and Practice- Product Image
Tail Risk Hedging: Theory and Practice- Product Image

Tail Risk Hedging: Theory and Practice

  • ID: 2886040
  • Book
  • July 2014
  • Risk Books
Since the global financial crisis, investors have been faced with the difficult question of how to generate returns in a more uncertain and volatile environment while controlling the potential downside. Traditional risk control methods such as diversification have been shown to have limits and as a result tail risk hedging has emerged as one possible answer, with several investment managers reporting the tail risk hedging business to be their fastest area of asset growth in the wake of the crisis.

This is the first ever edited volume on tail risk hedging, which can serve as a primer and an authoritative guide for institutional investors. Edited by leading experts in the area Andrew Rozanov and Ryan McRandal, based at Permal and Peters Capital Group respectively, the book brings together a representative cross-section of views from practitioners who are active in the space.

Chapters include:

- An Introduction to Tail Risk Hedging
- Strategic Tail Risk Management: a Pension Fund's Perspective
- An Asset Allocator's Approach to Tail Risk Hedging
- A Systematic Approach to Tail Risk Hedging


"The definitive source for any investor considering tail hedging. The expertise of writers (and editors!) shines through in every chapter. By showcasing the institutional users' frameworks to assess the role of tail hedging in their portfolios as well as a range of diverse solutions offered by major tail hedge providers, the book gives a comprehensive picture of the menu of possibilities, with pros and cons on each."

- Antti Ilmanen, Principal at? AQR Capital Management and author of 'Expected Returns'.

"Tail Risk Hedging is as important as it is timely. As yields and spreads in developed markets touch all-time lows and volatility across asset classes is crushed under the weight of global central bank intervention, it is all-too easy for investors to overlook the risks building quietly around them. With contributions from many of the industry's most thoughtful tail risk practitioners, Rozanov and McRandal have compiled an insightful and well rounded book that may turn out to be the most important addition to your investment library this year and next."

- Luke Dixon, Co-Head of Public Market Manager Selection at USS Investment Management.

“Rozanov and McRandal have assembled a preeminent cast of experts to tackle the hugely important challenge of tail risk hedging. Their introductory chapter offers a concise, but hardly superficial, overview of the topic, which is followed by a series of targeted analyses from the perspectives of both asset owners and managers. Anyone who worries about large drawdowns should keep this book close at hand.”

- Mark Kritzman, President and CEO of Windham Capital Management and Senior Lecturer at MIT Sloan

"Avoiding the disastrous consequences of extreme left tail events is critical to successful asset management. The range of approaches to hedging tail risk, however, is limitless. The benefits of each competing approach must be carefully weighed against the costs. The chapters of this book provide a strong sense for what the important risks are and how they may be managed. Each is written by a risk management expert, and, collectively, the contributors share the practical wisdom and knowledge that comes from several centuries of risk management experience. Rozanov and McRandal are to be commended for their efforts in enriching our understanding of the practice of risk management."

- Robert E. Whaley, Valere Blair Potter Professor of Finance and Director of the Financial Markets Research Center, Vanderbilt University, and the creator of the VIX.

“The discussion of tail risk is essential to contextualising the true risks that investors face. Tail Risk Hedging pulls together valuable perspectives and insights from leading practitioners. In doing so, the book creates what is at once a primer, and a manual, for risk management professionals.”

- Leo Svoboda, Portfolio Manager, UPS Investments Group
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1. An Introduction to Tail Risk Hedging
Andrew Rozanov; Ryan McRandal
Permal Group; Peters Capital Group

2. Tail Risk Hedging: An Investment Consultant's Perspective
David Zanutto

3. Strategic Tail Risk Management: A Pension Fund's Perspective
Chris Limbach

4. An Asset Allocator's Approach to Tail Risk Hedging
John Liu
Spartus Capital Management

5. Dealing with Wrong-way Risk: A University Endowment's Perspective
Mike Edleson
The University of Chicago

6. A Multi-Strategy Approach to Tail Risk Hedging
Ryan McRandal
Peters Capital Group

7. A Discretionary Approach to Tail Risk Hedging
Angel Serrat
Capula Investment Management

8. Insuring Against Hidden Financial Catastrophe Risk
Josh Davis and Vineer Bhansali

9. Benchmarking Convexity: Towards a Holistic Approach
Anthony Limbrick and Siva Naguleswaran
36 South Capital Advisors LLP

10. Using Equity Options and Volatility to Manage Tail Risk
Arié Aboulafia
Capstone Investment Advisors

11. A Systematic Approach to Tail Risk Hedging
Jean-François Bacmann and Sandy Rattray
Man Group

12. Tail Risk Hedging Using Convertibles
Paul Sansome
Ferox Capital

13. Sourcing Convexity in Asian Markets
Andrew Wong
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Andrew Rozanov is Managing Director and Head of Institutional Portfolio Advisory at Permal Group, responsible for advising sovereign wealth funds and other long-term institutional investors on various aspects of asset allocation, portfolio construction, risk management and alternative investments, with a particular focus on global macro and tail risk strategies.

Before joining Permal, Andrew was at State Street, where he was Managing Director and Head of Sovereign Advisory, working closely with the Portfolio and Risk Management Group. Prior to that, he held various roles at State Street Corporation in London and Tokyo, and he also worked at UBS Investment Bank in Japan. Andrew is well known in the industry for having introduced the term ‘sovereign wealth funds' in an article in Central Banking Journal in 2005. In 2012, he published a highly acclaimed book Global Macro: Theory and Practice. He is a Chartered Financial Analyst (CFA), a Financial Risk Manager (FRM), and a Chartered Alternative Investment Analyst (CAIA). He holds a Master's equivalent degree in Asian and African Studies from Moscow State University.

Ryan McRandal is currently a Portfolio Manager at Peters Capital Group, a global macro firm that builds and implements bespoke investment portfolios for institutional clients. These portfolios are thematic in nature and cover a range of unique investment objectives including tail risk hedging in equities and interest rates. Ryan was formerly the Head of Thematic Portfolio Management at AXA Investment Managers. His focus was on creating customized solutions and building thematic portfolios for institutional clients, particularly in areas such as macro convexity and hedging equity risk. Ryan launched and managed the first institutional fund of tail hedging strategies in the world, the award winning AXA Alternative Tail Hedge fund. Ryan was also responsible for hedge fund allocation as well as private equity, impact investing and real estate solutions and oversight. Prior to joining AXA IM, he worked for four years as the Head of Research at Unifortune Asset Management, a multi-year award-winning hedge fund boutique. Prior to that role, he was a derivatives trader. At Swiss Re Capital Markets, London, he held a Vice President position on a fixed income treasury and trading desk. He has also been a derivatives trader at WestLB in London. At WestLB he was part of the Cross Market Derivatives Arbitrage Group and has multi-asset class derivatives expertise having traded across interest rates, foreign exchange and emerging market credit derivatives. Ryan graduated with a first-class, honors, degree in International Securities, Investment and Banking from the ICMA Centre's specialist business school for financial markets, University of Reading.
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