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Contribution Details
| Type | Master's Thesis |
| Scope | Discipline-based scholarship |
| Title | Offensive Risk Management: An Empirical View on Tail Hedging Strategies |
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| Institution | University of Zurich |
| Faculty | Faculty of Economics, Business Administration and Information Technology |
| Number of Pages | 85 |
| Date | 2015 |
| Abstract Text | This thesis provides a comprehensive analysis of tail hedging strategies according to Bhansali and Davis (2010b). The contributions of this thesis are manifold. The threshold FAVAR model is extensively analysed in a first step, the tail hedging strategy's parameters are investigated thereafter. Two new monetization types are introduced: A time-varying monetization multiple and a reversal signal. Another crucial contribution is the decoupling of the attachment rate and the annual tail hedging budget, which allows for further insights. Additionally, the impact of implementing a tail hedging strategy in a portfolio context is examined. The author finds that the monetization multiple constitutes a classic trade-off dilemma. Options with lower attachment rates show better risk and performance measures, albeit facing a higher bid-ask spread. Options with high attachment rates benefit from a shortened holding period, while for options bought at lower attachment rates an overlapping approach should be considered. The introduction of a time-varying monetization multiple shows no substantial improvement over the simple, fixed monetization multiple. The same holds for the introduction of a reversal signal on implied volatility and the plain put option value. The strategy seems to thrive especially within a portfolio context, since an anti-cyclical effect was found and analysed. i |
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