Re-thinking Risk Management in an Ultra-Low Yield Environment

As the world continues to grapple with the fallout from the Covid-19 pandemic, we’ve seen government bond yields entering an uncharted territory. Asset diversification relies upon government bonds for risk management in severe stressed scenarios. Falling yields are making this risk management approach increasingly more expensive, and there is now increasing pressure to diversify risk management. In this article, we explore dynamic hedging as an alternative risk management approach to diversification.