People are excited about tail risk. On the institutional side, banks and asset managers are packaging up complex, multi-asset hedging products and selling them to pension funds, endowments, and other natural longs. On the retail side, Barclays and others are getting great traction with products like VXX, VXZ, VXX options and now XXV (see Bill’s helpful overview of this space). I’m hoping to join the fray, too, with a managed account program and subscription product set to launch…
Felix Salmon is doubtful about whether it is possible to hedge tail risk, and I wholeheartedly agree with the data he cites showing that, of eight major asset classes, only volatility and managed futures offer genuine non-correlation to market returns. In fact, I’ll go a step further: I’m not that enthusiastic about the benefits of managed futures, at least in their current form. As a registered commodity trading advisor, I’ve seen the sorts of strategies that most of…
Some traders use options to speculate on the price movement of an underlying asset; other traders use options to speculate on changes in the volatility, implied or realized, of that asset. Put a little differently: while no options trader can afford to ignore the role that volatility plays in the price of a contract, not all options traders are interested exclusively or even primarily in volatility. If you’re essentially a stock picker who likes to lever up by buying puts…
The old maxim is that when major market movements occur, all betas go to one. We decided to look at the beta for a few stocks during 2008 to determine whether and to what extent that maxim held true.
The reason we wanted to investigate the beta exhibited during 2008 – and especially during the fall crash – is that investors and traders use beta as a measurement of how risky an asset is relative to the market, with the…
Nassim Nicholas Taleb, author of the widely discussed The Black Swan and Fooled By Randomness, is out with a new paper. “The Fourth Quadrant: A Map of the Limits of Statistics” pursues a thesis very familiar to his readers, namely that economists and finance professionals put society at risk by offering false comfort in the form of statistical models.
Risk Does Not Equal Volatility
The novel effort here is Taleb’s attempt to map out which kinds of risks and…
Friday, July 23, 2010
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