Hedging Extreme Co-Movements

Yannick Malevergne and D. Sornette
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D. Sornette: CNRS-Univ. Nice and UCLA

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Abstract: Based on a recent theorem due to the authors, it is shown how the extreme tail dependence between an asset and a factor or index or between two assets can be easily calibrated. Portfolios constructed with stocks with minimal tail dependence with the market exhibit a remarkable degree of decorrelation with the market at no cost in terms of performance measured by the Sharpe ratio.

Date: 2002-05
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Published in Minimizing Extremes, RISK, November issue, 129-133 (2002) (www.risk.net)

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:cond-mat/0205636

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