Author: Vineer Bhansali is the Founder and CIO of LongTail Alpha. He has more than 30 years of experience in firms like Citi, Solomon Brothers, and PIMCO working on exotic and hybrid options trading, fixed income arbitrage, managed futures, tail risk hedging and related fields. Bhansali received his PhD in Theoretical Physics from Harvard University in 1992 and M.S. and B.S. degrees in Physics from Caltech in 1987
Book: The book offers a practical overview of tail risk hedging techniques and strategies. Tail risk hedging refers to benefiting from negative low probability extreme events in the market with an insurance-like payoff so that the overall portfolio does not decline significantly in value due to the event. The author assumes that the reader is familiar with the idea, as well as with option pricing and trading. The author starts with a high-level view of the reasons to tail hedge your portfolio, and then, goes straight to the techniques and considerations on the instruments to match exposure, costs, attachment levels, etc. while considering the effects on the different types of portfolios and behavioural issues.
Opinion: For those interested in the application of tail risk strategies this is probably one of the best resources. The book is highly technical, and you may not understand some formulas and ideas if you lack a mathematical background, as was my case. If someone is interested in the field, I would recommend reading less technical stuff first (i.e., The Black Swan, Antifragile, Safe Heaven, The Misbehaviour of Markets) and then Spitznagel´s papers available on the web of Universa Investments. In general terms, I think that investors and academics using modern finance tools are often wrong regarding tail risk hedging strategies because they do not consider the hedge in the context of the portfolio (expected return may increase even if there is not a crash: Real Cost=ERP x increase equity allocation vs FI – Hedge Cost) + having access to cash in dry markets when correlations fail + wild randomness of markets + the volatility tax…
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