We have been convinced through our research that the purpose of risk management is to use all tools available in the markets to create more robust portfolios that can survive major shocks. In a recent paper titled Diversifying Diversification my colleague, Jeremie Holdom, and I demonstrate that a democratic and open-minded approach to risk management is almost as good as a strategy that fine tunes the selection of risk-reducing instruments using perfect hindsight. The added benefit of a simple strategy is that it does not require contortions and convulsions to justify a unitary point of view. Here I will discuss one of those strategies: the use of put options.
The full note on this important topic can be downloaded at this link: LTA Thinking- Contemporaneous Cost-Effective Convexity