This paper focuses on an unexplored dimension of fund managers' timing ability: market-wide tail risk implied by information in options markets. We investigate whether hedge fund managers can strategically time market tail risk implied by options through adjusting their portfolios' market exposure to changes in market tail risk. Using an extensive sample of 6,147 equity-oriented hedge funds over the period 1996 to 2012, we find strong evidence of tail risk timing ability of hedge fund managers. We conduct bootstrap analysis and confirm that our tail risk timing ability is not attributed to pure luck. Furthermore, tail risk timing ability brings significant economic value to investors. Specifically, in out-of-sample tests, top-ranked hedge funds outperform bottom-ranked funds by 5-7% annually after adjusting for common risk factors. Also, we find that managers' tail risk timing skill persists over time, suggesting that hedge fund managers' tail risk timing ability reflects true managerial skill. Our overall results are robust to various hedge fund characteristics, subsample or sub-period analysis, the use of alternative timing abilities, and other hedge funds' managerial skills. Our empirical examination emphasizes the role of market-wide option-implied tail risk in hedge fund managers' skill and their performance.

In this book, a hedge fund manager and an option trading coach show you how to earn steady, reliable income selling options by managing your option trades and running your option portfolio as a real business with consistent, steady returns. Packed with real-world examples, the authors show you how to manage your own "one man" hedge fund and make consistent profits from selling options by applying the basic framework and fundamental business model and principles of an "insurance company". This framework helps you to apply your option trading strategy to a solid, predictable, business model with consistent returns. For someone who has some knowledge of trading options and wants to become a consistent income earner. The authors provide a complete "operations manual" for setting up your business. Gain pearls of wisdom from both a professional options trader and coach, and from a hedge fund manager focused on managing an options based portfolio.

"TAIL RISKS" originate from the failure of mean reversion and the idealized bell curve of asset returns, which assumes that highly probable outcomes occur near the center of the curve and that unlikely occurrences, good and bad, happen rarely, if at all, at either "tail" of the curve. Ever since the global financial crisis, protecting investments against these severe tail events has become a priority for investors and money managers, but it is something Vineer Bhansali and his team at PIMCO have been doing for over a decade. In one of the first comprehensive and rigorous books ever written on tail risk hedging, he lays out a systematic approach to protecting portfolios from, and potentially benefiting from, rare yet severe market outcomes. Tail Risk Hedging is built on the author's practical experience applying macroeconomic forecasting and quantitative modeling techniques across asset markets. Using empirical data and charts, he explains the consequences of diversification failure in tail events and how to manage portfolios when this happens. He provides an easy-to-use, yet rigorous framework for protecting investment portfolios against tail risk and using tail hedging to play offense. Tail Risk Hedging explores how to: Generate profits from volatility and illiquidity during tail-risk events in equity and credit markets Buy attractively priced tail hedges that add value to a portfolio and quantify basis risk Interpret the psychology of investors in option pricing and portfolio construction Customize explicit hedges for retirement investments Hedge risk factors such as duration risk and inflation risk Managing tail risk is today's most significant development in risk management, and this thorough guide helps you access every aspect of it. With the time-tested and mathematically rigorous strategies described here, including pieces of computer code, you get access to insights to help mitigate portfolio losses in significant downturns, create explosive liquidity while unhedged participants are forced to sell, and create more aggressive yet tail-risk-focused portfolios. The book also gives you a unique, higher level view of how tail risk is related to investing in alternatives, and of derivatives such as zerocost collars and variance swaps. Volatility and tail risks are here to stay, and so should your clients' wealth when you use Tail Risk Hedging for managing portfolios. PRAISE FOR TAIL RISK HEDGING: "Managing, mitigating, and even exploiting the risk of bad times are the most important concerns in investments. Bhansali puts tail risk hedging and tail risk management under a microscope--pricing, implementation, and showing how we can fine-tune our risk exposures, which are all crucial ways in how we can better weather our bad times." -- ANDREW ANG, Ann F. Kaplan Professor of Business at Columbia University "This book is critical and accessible reading for fiduciaries, financial consultants and investors interested in both theoretical foundations and practical considerations for how to frame hedging downside risk in portfolios. It is a tremendous resource for anyone involved in asset allocation today." -- CHRISTOPHER C. GECZY, Ph.D., Academic Director, Wharton Wealth Management Initiative and Adj. Associate Professor of Finance, The Wharton School "Bhansali's book demonstrates how tail risk hedging can work, be concretely implemented, and lead to higher returns so that it is possible to have your cake and eat it too! A must read for the savvy investor." -- DIDIER SORNETTE, Professor on the Chair of Entrepreneurial Risks, ETH Zurich

We propose a non-parametric method based on a model-free formula to evaluate the tails of a risk-neutral distribution using the full cross-section of option prices at a fixed horizon. The method leads to the joint estimation of risk-neutral tail probabilities and tail expectations beyond the minimum and maximum strike prices. We confirm the accuracy of the risk-neutral tail measures using simulated data. We extract time series of left and right option implied tail risk measures from S&P 500 index options. We find the ratio of risk-neutral left tail conditional expectation to a physical measure of tail risk significantly predicts the equity risk premium at longer return horizons of six months to twelve months with a significant improvement in ex- planatory power when compared to using the physical tail risk measure alone. We also find that both the risk-neutral left and right tail conditional expectations significantly predict the one-month ahead variance risk premium.

How will the funds of hedge funds (FoHF) business have to change to survive in the wake of the 2008-2012 financial crisis? This new research provides valuable insight. Reconsidering Funds of Hedge Funds presents the first comprehensive views of UCITS as well as recent trends in due diligence, risk management, and hedge fund deaths and survivors. The book contains original chapters by 22 academics and 16 hedge fund professionals, and includes two sections on performance: one that looks at UCITS FoHF and one that deals with traditional FoHF performance. Most chapters examine aspects of the 2008-2012 financial crisis, and almost every chapter addresses fund of hedge funds' management process before, during, and after the crisis. Covers recent advances in risk management, due diligence, tail risk, and allocation Presents an in-depth analysis of UCITs Balances academic and professional viewpoints

Contains incisive articles dealing with quantitative and qualitative analyses of hedge funds.