COVERAGE
1. "An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult to predict."
Source: www.investopedia.com
2. Market tails are fatter or more frequent than people realise with extreme events not as rare as people thought.
Source: www.investopedia.com
2. Market tails are fatter or more frequent than people realise with extreme events not as rare as people thought.
3. These events are usually not predicted by computer models or traditional risks assessment exercises (falling near the low likelihood & high impact area).
4. Traditional risks assessment's low likelihood scenarios does not account for blackswans as they are still Unknowns.
PREVIOUS EVENTS
1. Below are a list of black swan events.
2. There is a saying that a financial crisis happens every 7 to 10 years. But look at the timeline of events below, crisis happens every 3 to 5 years albeit on smaller scales.
2. There is a saying that a financial crisis happens every 7 to 10 years. But look at the timeline of events below, crisis happens every 3 to 5 years albeit on smaller scales.
-2011 - European Debt Crisis,
-2001 - Argentine Debt Default
-1998- Long Term Cap Mgmt Fund Collapse; Russian Debt Default
-1997 - Asian Financial Crisis
-1994 - Mexican Peso Crisis
-1992 - European Monetary System Crisis
MANAGING BLACK SWANS
1. Strategy is to bet a small portion (approx 10%) on options contracts or other speculative bets whose prices will soar during a market panic.
2. There are specialized funds designed to protect against a market plunge but still profit when markets rise.
3. The strategy typically involves buying various"put" options on everything from stock indexes and interest rates to currencies.
4. There are risks involves with these strategies as its not guaranteed to appreciate during downturns.
5. Below are some strategies involved with tail-risks.
EMERALD FROM DEUTSCHE BANK
1.short form for "Equity Mean Reversion Alpha"
2. Benchmarks are sold via structured notes by the sponsoring bank and paired with S&P 500, a proxy for the U.S. stock market.
3. It delivers the return of the underlying benchmark plus the performance of the S&P 500.
4. The strategy is to expect mean reversion in market returns will prevail. Above-mean performance tends to lead to below-mean returns, and vice versa.
TALEB'S BARBELL STRATEGY
1. 85% to 90% of portfolios in safe instruments and the remaining 10% to 15% in highly speculative bets such as options.
2. "If you know that you are vulnerable to prediction errors, and […] accept that most “risk measures” are flawed, then your strategy is to be as hyperconservative and hyperaggressive as you can be instead of being mildly aggressive or conservative."
Source: Nassim Nicholas Taleb
ZERO-SUM COLLAR
1.A zero-sum is when we flip a coin and I get $1 on heads and you get $1 on tails.
2. It involves a combination of put options to limit losses and call options to take advantage of the upside.
3. A similar hedging approach is to buy puts on stocks already owned.
1. Strategy is to bet a small portion (approx 10%) on options contracts or other speculative bets whose prices will soar during a market panic.
2. There are specialized funds designed to protect against a market plunge but still profit when markets rise.
3. The strategy typically involves buying various"put" options on everything from stock indexes and interest rates to currencies.
4. There are risks involves with these strategies as its not guaranteed to appreciate during downturns.
5. Below are some strategies involved with tail-risks.
EMERALD FROM DEUTSCHE BANK
1.short form for "Equity Mean Reversion Alpha"
2. Benchmarks are sold via structured notes by the sponsoring bank and paired with S&P 500, a proxy for the U.S. stock market.
3. It delivers the return of the underlying benchmark plus the performance of the S&P 500.
4. The strategy is to expect mean reversion in market returns will prevail. Above-mean performance tends to lead to below-mean returns, and vice versa.
TALEB'S BARBELL STRATEGY
1. 85% to 90% of portfolios in safe instruments and the remaining 10% to 15% in highly speculative bets such as options.
2. "If you know that you are vulnerable to prediction errors, and […] accept that most “risk measures” are flawed, then your strategy is to be as hyperconservative and hyperaggressive as you can be instead of being mildly aggressive or conservative."
Source: Nassim Nicholas Taleb
ZERO-SUM COLLAR
1.A zero-sum is when we flip a coin and I get $1 on heads and you get $1 on tails.
2. It involves a combination of put options to limit losses and call options to take advantage of the upside.
3. A similar hedging approach is to buy puts on stocks already owned.
