Tail risk hedging is not a new concept. But it’s gained renewed prominence since the publication of Vineer Bhansali’s book called, yes of course, Tail Risk Hedging.
Dr. Bhansali is a managing director and portfolio manager for PIMCO. He currently oversees quantitative investment portfolios. PIMCO manages nearly $30 billion in tail risk hedging mandates for a wide variety of investment portfolios.
CMG Capital Management Group CEO Steve Blumenthal has referred to tail risk hedging in a few of his recent postings of On My Radar.
What is tail risk? Investopedia defines it as “A form of portfolio risk that arises when the possibility that an investment will move more than three standard deviations from the mean is greater than what is shown by a normal distribution.”
Assessing Strategies in Tail-Risk Protection (the 8 pg. pdf article qualifies for 0.5 CE credit) from the CFA Institute explains: “Tail-risk hedging is designed to protect investors against tail-risk events, but like other forms of insurance, it involves material costs. Weighing the cost of a strategy—to the extent that it can be measured—against its ability to insure a portfolio from the consequences of the tail event can be challenging.”
Another resource: Tail Risk Hedging 101: Credit from Zero Hedge.