Turning Tail Risks into Tailwinds

The Journal of Portfolio Management, 2021 ‘Multi-asset’ Special Edition

Posted: 26 Feb 2021

See all articles by Jerome Gava

Jerome Gava

BNP Paribas; Ecole Polytechnique

Francisco Guevara

École polytechnique

Julien Turc

BNP Paribas; Ecole Polytechnique

Date Written: December 4, 2020

Abstract

This study compares a broad range of risk models for managing multi-asset portfolios. The investment universe is extended to a range of systematic strategies with varying risk and return profiles. Focusing on risk parity portfolios, it is shown that considering tail risks can successfully reduce negative asymmetry and sharp losses. Extreme risk theory is of particular help in finding the right allocation to defensive systematic strategies in the portfolio.

Keywords: Risk parity, tail risk, systematic investing, trend following, put underwriting, spectral risk measures, decision theory, cumulative prospect theory, Cornish-Fisher expansion, power-law distributions, copula, vine copula

JEL Classification: C10, C30, C60, G11

Suggested Citation

Gava, Jerome and Guevara, Francisco and Turc, Julien, Turning Tail Risks into Tailwinds (December 4, 2020). The Journal of Portfolio Management, 2021 ‘Multi-asset’ Special Edition, Available at SSRN: https://ssrn.com/abstract=3742735

Jerome Gava

BNP Paribas ( email )

20 Boulevard des Italiens
Paris, 75009
France

Ecole Polytechnique ( email )

Route de Saclay
Palaiseau, 91128
France

HOME PAGE: http://https://portail.polytechnique.edu/economie/en

Francisco Guevara

École polytechnique ( email )

France

Julien Turc (Contact Author)

BNP Paribas ( email )

20 boulevard des Italiens
Paris, 75009
France

Ecole Polytechnique ( email )

Route de Saclay
Palaiseau, 91120
France

HOME PAGE: http://https://portail.polytechnique.edu/economie/en

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
863
PlumX Metrics