Devising a volatility-based tail hedging strategy in Asia invariably involves dealers citing the lack of liquidity in the newly developed volatility futures products in Hong Kong and Japan and resorting instead to the tried and tested Vix futures in the US which is a measure of the volatility of the S&P 500.
The trouble is that this involves dealers and investors exposing themselves to basis risk from the imperfect hedge between their underlying portfolio and volatility levels based on a
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