Tail Risk Protection to be Discussed at 3-Day Conference in Ireland

Tail risk protection will be one of the many topics to be discussed at CBOE’s inaugural Risk Management Conference (RMC) in Europe. Now in its 28th year in the U.S., the first RMC Europe will be held on 5 – 7 September 2012 at The Ritz-Carlton Powerscourt, County Wicklow, Ireland.

The conference agenda and registration information are at www.cboermc.com/Europe Keynote speakers at the conference will be Dr. David M. Blitzer, Managing Director and Director of the Index Committee, Standard & Poor’s, and William J. Brodsky, CBOE Chairman and CEO.

The panel on Tail Risk Protection will discuss:

  • Why and how investors might hedge downside risk
  • The case for hedging as an offensive strategy in today’s market
  • Determining acceptable levels of protection and costs
  • Strategy alternatives for implementing hedges

Moderator: Ryan McRandall, Portfolio Manager, AXA Investment Managers

Panelists:

  • Alex Capez, Portfolio Manager, Occitan Capital Partners
  • Fabio Castaldi, Head of Absolute Return, Amundi Asset Management
  • Sandy Rattray, Head of Man Systematic Strategies, Man Group
  • Chris Rodarte, Portfolio Manager, Pine River Capital Management

INDEXES, TAIL RISK PROTECTION, and DIVERSIFICATION

The two charts below show months in which the S&P 500 Index dropped by 16.8% (October 2008) and 6.0% (May 2012).  The spot gold price and the S&P GSCI commodity index also experienced steep declines during these two months, and some investors have lamented the fact that, as the stock indexes fall, many other indexes tend to go down, and correlations among indexes tend to rise.  However, three of the VIX-based indexes in the charts below actually rose in both months.  Investors might re-think traditional diversification strategies after seeing these charts.

CAUTION: Please read the applicable prospectus and examine at the multi-year performance of these indexes before investing in any investment product related to these indexes. For example, while the S&P 500 VIX Short-term Futures Index might be useful when considering a short-term hedge against catastrophic risk, the index is not viewed as a good long-term holding because of longer-term roll costs involved with contango issues.

Exhibit J of the paper by Asset Consulting Group – “Key Tools for Hedging and Tail Risk Management” (February 2012, available at www.cboe.com/benchmarks) shows the performance of four indexes

  • S&P 500 VIX Mid-term Futures Index (VXMT)
  • S&P 500 Dynamic VIX Futures Index (DyVX)
  • S&P 500 VIX Futures Tail Risk Index – Short Term (VTRsk)
  • S&P 500 Index

 

To learn more about tail risk protection, please consider:

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Please note that indexes are not directly investable.  Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options, http://www.cboe.com/Resources/Intro.asp  which is available from your broker, by calling 1-888-OPTIONS, or from The Options Clearing Corporation, One North Wacker Drive, Suite 500, Chicago, IL 60606. The information in the charts above is provided solely for general education and information purposes and therefore should not be considered complete, precise, or current. Past performance is not a guarantee of future returns.

 

 

The posts on this blog are opinions, not advice.
Please read our disclaimer for Indices.

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  1. By Black Swan tail risk | Wall Street Stocks on July 7, 2012 at 11:46 pm

    […] Tail Risk Protection to be Discussed at 3-Day Conference in Ireland […]

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