Tail Risk Hedging: It Pays to Be Countercyclical

Tail Risk Hedging: It Pays to Be Countercyclical

Vineer Bhansali

· The cost of hedging in absolute terms is back to pre-crisis lows.

· Quiet markets, low volatility and a lack of visible risks on the horizon can lead to complacence and increasingly dangerous, leveraged positions.

· Many credit markets have been direct beneficiaries of the belief in seemingly lower tail risks in equity markets, and could also end up suffering if there is a re-emergence of widespread fear of, and upward repricing of, these tails.

· Investors should consider taking this opportunity to reload their hedges as soon as they can.