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  • July 2021 (Revised December 2021)
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Pershing Square's Pandemic Trade (A)

By: Emil N. Siriwardane, Luis M. Viceira, Dean Xu and Lucas Baker
  • Format:Print
  • | Language:English
  • | Pages:19
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Abstract

This case explores the decision that Bill Ackman, CEO and founder of the hedge fund Pershing Square Capital, was considering in late February 2020 about hedging the exposure of the fund’s portfolio from the potential financial fallout ensuing from an extreme event like a global pandemic. Bill Ackman had become increasingly concerned about the hedge fund’s exposure to a novel, highly infectious, and lethal coronavirus that was spreading across the globe. Ackman and his team needed to decide whether this was a risk worth hedging, and if so, which hedging instruments would best balance risk mitigation, explicit costs (fees and premia), opportunity costs, and the long-run objectives of the fund. Ackman and his team considered fully liquidating their portfolio, as well as hedging it with futures, options, and credit default swaps. For each alternative, they also needed to determine the optimal size and maturity of the hedging position, after accounting for uncertainty over the trajectory of the virus. This case provides students with ample opportunities to analyze and understand tail risk and how to manage it in practice, including explicit calculations of position sizing, costs, risks, and benefits of hedging alternatives.

Keywords

Health Pandemics; Financial Liquidity; Cost Management; Decision Choices and Conditions; Risk Management

Citation

Siriwardane, Emil N., Luis M. Viceira, Dean Xu, and Lucas Baker. "Pershing Square's Pandemic Trade (A)." Harvard Business School Case 222-007, July 2021. (Revised December 2021.)
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About The Authors

Emil N. Siriwardane

Finance
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Luis M. Viceira

Finance
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Related Work

    • July 2021
    • Faculty Research

    Pershing Square's Pandemic Trade (B)

    By: Emil N. Siriwardane, Luis M. Viceira and Dean Xu
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    Pershing Square's Pandemic Trade (C)

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    Pershing Square's Pandemic Trade (D)

    By: Emil N. Siriwardane, Luis M. Viceira and Dean Xu
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    • Faculty Research

    Pershing Square's Pandemic Trade (A)

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    • August 2022 (Revised August 2022)
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    Pershing Square’s Pandemic Trade

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Related Work
  • Pershing Square's Pandemic Trade (B) By: Emil N. Siriwardane, Luis M. Viceira and Dean Xu
  • Pershing Square's Pandemic Trade (C) By: Emil N. Siriwardane, Luis M. Viceira and Dean Xu
  • Pershing Square's Pandemic Trade (D) By: Emil N. Siriwardane, Luis M. Viceira and Dean Xu
  • Pershing Square's Pandemic Trade (A) By: Emil N. Siriwardane, Luis M. Viceira, Dean Xu and Lucas Baker
  • Pershing Square’s Pandemic Trade By: Emil N. Siriwardane and Luis M. Viceira
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