Why diversification fails in crises, why convexity creates liquidity, and why structure matters more than payoff
Tail hedging in institutional portfolios is often treated as optional insurance. In practice, it is structural.
Diversification works in normal markets. In crises, correlations converge, liquidity disappears, and portfolios built on “uncorrelated” assets fail together.
This practitioner paper looks at tail hedging through portfolio behaviour and implementation reality, not theory or product selection.
It explains why most tail-risk programmes fail – not because convexity doesn’t work, but because it is under-sized, poorly governed, or never monetised. It shows why resilience matters more than hedge P&L, how convexity converts drawdowns into liquidity, and why the real value of a tail hedge is the optionality it creates after the shock.
Drawing on eight major crises over the past 35 years, the paper shows what actually worked, what broke, and why – across equities, credit, volatility, and policy-driven regime shifts.
It also addresses the practical constraints that determine outcomes: sizing, carry tolerance, listed versus OTC execution, counterparty risk, clearing, and the discipline required to turn hedge gains into cash before convexity decays.
Tail hedging is not about predicting crashes or running a profit centre. It is about preserving compounding power and ensuring portfolios emerge from crises with liquidity, not damage.
Read the practitioner paper
The Tail Hedge Playbook – How CIOs Buy Liquidity When Everyone Else Is Bleeding