Dr. Benn Eifert - Bad Ideas (S3E3)
Flirting with Models
Should We Ever Buy Tail Risk?
Tail risk is really about very big events and very asymmetric payoffs, not about kind of local hedging or local volatility exposure. A lot of tails have been underpriced as they've brought in large sellers to try to carry tail risk. But then the other key question is at a point in time, how much is the world charging you for different types of tail risk? Are there opportunities for an owner that makes sense given the pricing? And the answer is sometimes yes, sometimes no; I think in the credit crisis,. many asset owners flooded into tail funds and insurance buying at any price given how bad that event was.
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