Tail Risk Hedging and Regime Switching

Huggenberger, Markus ; Albrecht, Peter ; Pekelis, Alexandr

PDF (Tail Risk Hedging and Regime Switching )
mm186.pdf - Published

Download (636kB)

URL: https://ub-madoc.bib.uni-mannheim.de/38221
URN: urn:nbn:de:bsz:180-madoc-382217
Document Type: Working paper
Year of publication: 2015
The title of a journal, publication series: Mannheimer Manuskripte zu Risikotheorie, Portfolio Management und Versicherungswirtschaft
Volume: 186
Place of publication: Mannheim
Edition: Version 2015
Publication language: English
Institution: Außerfakultäre Einrichtungen > Institut für Versicherungswissenschaft
Business School > ABWL, Risikotheorie, Portfolio Management u. Versicherungswissenschaft (Albrecht)
MADOC publication series: Lehrstuhl für ABWL, Risikotheorie, Portfolio Management und Versicherungswirtschaft (Albrecht) > Mannheimer Manuskripte zu Risikotheorie, Portfolio Management und Versicherungswirtschaft
Subject: 330 Economics
Keywords (English): Futures Hedging , Quantile Derivatives , Mixture Distributions , Elliptical Distributions , Value at Risk , Conditional Value at Risk
Abstract: In this paper, we analyze futures-based hedging strategies which minimize tail risk measured by Value-at-Risk (VaR) and Conditional-Value-at-Risk (CVaR). In par- ticular, we first deduce general characterizations of VaR- and CVaR-minimal hedging policies from results on quantile derivatives. We then derive first-order conditions for tail-risk-minimal hedging in mixture and regime-switching (RS) models. Using cross hedging examples, we show that CVaR-minimal hedging can noticeably deviate from standard minimum-variance hedging if the return data exhibit nonelliptical features. In our examples, we find an increase in hedging amounts if RS models identify a joint crash scenario and we confirm a reduction in tail risk using empirical and EVT-based risk estimators. These results imply that switching from minimum-variance to CVaR- minimal hedging can cut losses during financial crises and reduce capital requirements for institutional investors.

Dieser Eintrag ist Teil der Universitätsbibliographie.

Das Dokument wird vom Publikationsserver der Universitätsbibliothek Mannheim bereitgestellt.

Available versions of this item

Metadata export


+ Search Authors in

+ Download Statistics

Downloads per month over past year

View more statistics

You have found an error? Please let us know about your desired correction here: E-Mail

Actions (login required)

Show item Show item