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Offensive Risk Management II: The Case for
Active Tail Hedging

Vineer Bhansali and Joshua M. Davis
The Journal of Portfolio Management Fall 2010, 37 (1) 78-91; DOI: https://doi.org/10.3905/jpm.2010.37.1.078
Vineer Bhansali
is a managing director and portfolio manager at PIMCO in Newport Beach, CA.
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  • For correspondence: bhansali@pimco.com
Joshua M. Davis
is a vice president and portfolio manager at PIMCO in Newport Beach, CA.
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  • For correspondence: josh.davis@pimco.com
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Abstract

Bhansali and Davis define offensive risk management as the use of tail hedges in a portfolio as a way for investors to allocate more capital to risky assets and simultaneously reduce the risk of large investment losses. If the hedge is purchased at the right price, the portfolio with tail risk hedges may have a more attractive risk–return profile than a buy-and-hold portfolio. The authors show, in the context of the 80-year history of the Standard & Poor’s Index, that intuitive rules of thumb for monetization can be justified and that the active management of tail hedges is consistent with the cyclical behavior of the economy and the markets.

TOPICS: Portfolio construction, tail risks, risk management

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Offensive Risk Management II: The Case for
Active Tail Hedging
Vineer Bhansali, Joshua M. Davis
The Journal of Portfolio Management Oct 2010, 37 (1) 78-91; DOI: 10.3905/jpm.2010.37.1.078

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Offensive Risk Management II: The Case for
Active Tail Hedging
Vineer Bhansali, Joshua M. Davis
The Journal of Portfolio Management Oct 2010, 37 (1) 78-91; DOI: 10.3905/jpm.2010.37.1.078
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  • Article
    • Abstract
    • IMPLIED VOLATILITY MODEL TO ESTIMATE HISTORICAL VOLATILITY SURFACES
    • MONETIZATION RULES
    • OFFENSIVE VERSUS DEFENSIVE TAIL RISK MANAGEMENT STRATEGIES
    • CONCLUSION
    • ENDNOTES
    • REFERENCES
  • Info & Metrics
  • PDF (Subscribers Only)
  • PDF (Subscribers Only)

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