Hedging Extreme Co-Movements
Statistical Mechanics
2008-12-02 v1 Trading and Market Microstructure
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.
Keywords
Cite
@article{arxiv.cond-mat/0205636,
title = {Hedging Extreme Co-Movements},
author = {Y. Malevergne and D. Sornette},
journal= {arXiv preprint arXiv:cond-mat/0205636},
year = {2008}
}
Comments
11 pages including 3 figures