Title: Tail Risk Hedging: An Alternative Approach to Risk Management -
Headings: Tail Risk Hedging: An Alternative Approach to Risk Management
Tail Risk Hedging: An Alternative Approach to Risk Management
Figure 1: Allocate Capital According to the Attractiveness of the Opportunity
Overview
Diversification via Asset Allocation
Figure 2: 10-year Rolling Returns
The Painful and Rarely Successful Strategy of Market Timing
Different Risk Profiles
In Practice
Tail Risk Hedging (TRH)
Precise Risk Targeting
Timing
The Cost of Certainty
Potential Products for Tail Risk Hedging
Product Dynamics
The Big Short: A Comparison
Conclusions 4

Content: Here I discuss how the perceptions and competing interests of different investors result in a layer of noise around market prices and thereby make market forecasting more difficult. I also discuss several practical challenges to implementing marketing timing strategies. Different Risk Profiles
Every investor has a different perspective and approach to investing. For example, younger investors may be more inclined to own stocks than older investors who have little appetite to risk put their retirement funds at risk. Moreover, every investor has a unique risk profile. Whether it is their natural personality or a particular investment experience (e.g., tech or housing bubble, scam or fraud, etc.), risk profiles are shaped by a variety of factors and can change through time. Even when investors have similar risk profiles, they may interpret investments differently. There are competing investment philosophies (e.g., active versus passive), different investment and valuation models, and every investor has a unique educational background with respecting to investing. Take evidence-based investing, for example.