Beware attempts to reduce tail-risk hedge costs, says Rattray

The cost of systematic tail-risk hedging strategies may be high, but market participants should be wary of trying to reduce the costs by adding discretionary positions, says Vix co-inventor

Attempts by bank management to reduce the costs of systematic tail-risk strategies by putting on discretionary positions is dangerous, as illustrated by the multi-billion-dollar loss racked up by JP Morgan on credit derivatives hedges, according to Sandy Rattray, chief investment officer of Man Systematic Strategies, part of Man Group.

Speaking on a panel at a risk management conference hosted by the Chicago Board Options Exchange in Ireland yesterday, Rattray – the co-inventor of the Vix index