Fat-tail attraction

摘要

"Tail-risk" hedging was the talk of Wall Street in 2008 after global markets nosedived and traumatised investors tried to figure out how they could protect themselves from extreme or "black swan" events-those well outside an ordinary distribution of outcomes-that cause massive losses. Interest is revving up again as revolutions in the Middle East and Japan's earthquake have destabilised markets and increased volatility, leaving battered investors searching anew for protection. Peddlers of tail-risk products like to compare them to insurance: investors pay premiums every year to avoid financial catastrophe later. Some even get philosophical. Vineer Bhansali of pimco, a big fund manager, has likened tail risk to Pascal's wager-the argument that you're better off believing in God than suffering the consequences of being wrong. The same is true with drastic dives in markets.