Deutsche Bank Pension Strategies & Solutions
May 2010
Mounting Tail Risk Concerns
Following the traumatic events of the last two years, risk and its management have become the
most visible subject within the asset owner world. As part of the management of the risk, tail risk
hedging has taken center stage.
This paper aims to provide a clear, step‐by‐step guide to the process of hedging tail risk across
many asset types. We hope that it is able to provide useful examples, common‐sense solutions,
and advantage/disadvantage analysis of various approaches. We have made every effort to make
its content clear, concise, and useful. Although Deutsche Bank Global Markets does not act in a
fiduciary capacity and this document is provided for informational purposes only, we hope that it
can serve as a positive step toward helping our clients make informed decisions.
http://allaboutalpha.com/blog/wp-content/uploads/2010/05/Tail-Risk-Hedging-May2010.pdf
Tail risk is technically a risk of a portfolio value move of at least three standard deviations (3σ
from the mean and is more probable (frequent) than anticipated by a normal distribution.
Have fun!
May 2010
Mounting Tail Risk Concerns
Following the traumatic events of the last two years, risk and its management have become the
most visible subject within the asset owner world. As part of the management of the risk, tail risk
hedging has taken center stage.
This paper aims to provide a clear, step‐by‐step guide to the process of hedging tail risk across
many asset types. We hope that it is able to provide useful examples, common‐sense solutions,
and advantage/disadvantage analysis of various approaches. We have made every effort to make
its content clear, concise, and useful. Although Deutsche Bank Global Markets does not act in a
fiduciary capacity and this document is provided for informational purposes only, we hope that it
can serve as a positive step toward helping our clients make informed decisions.
http://allaboutalpha.com/blog/wp-content/uploads/2010/05/Tail-Risk-Hedging-May2010.pdf
Tail risk is technically a risk of a portfolio value move of at least three standard deviations (3σ
from the mean and is more probable (frequent) than anticipated by a normal distribution.
Have fun!