Black Swan Protection: PIMCO

Firm to sell hedges against tail risk.

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story_images_black swan_sizeAlmost two years after Lehman Brothers Holdings’ failure caused world markets to seize up, PIMCO is planning a fund that will offer protection to investors against market declines of more than 15%.

Morgan Stanley strategists estimate demand for hedges against such cataclysms helped drive as much as a fivefold increase last quarter in trading of credit derivatives that speculate on market volatility.

The efforts to protect against another disaster, which helped drive up the relative costs of the most bearish credit derivatives to the highest in two years, show that investors’ psyches still haven’t recovered from the Lehman bankruptcy on Sept. 15, 2008, which erased $20.3 trillion in stock market value worldwide and caused credit markets to freeze. Full article here.

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