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Limits of Diversification under Fat Tails and Dependence

In: Heavy Tails and Copulas Topics in Dependence Modelling in Economics and Finance

Author

Listed:
  • Rustam Ibragimov
  • Artem Prokhorov

Abstract

This chapter revisits the question of when portfolio diversification does and does not work raised in Chapter 2. What is different is that now we let the portfolio components have certain more or less arbitrary forms of dependence. The types of dependence we consider include general power-type copula families, including those discussed in Section 3.3, as well as dependence structures induced by convolutions of α-symmetric distributions and models with common multiplicative and additive shocks.

Suggested Citation

  • Rustam Ibragimov & Artem Prokhorov, 2017. "Limits of Diversification under Fat Tails and Dependence," World Scientific Book Chapters, in: Heavy Tails and Copulas Topics in Dependence Modelling in Economics and Finance, chapter 4, pages 113-170, World Scientific Publishing Co. Pte. Ltd..
  • Handle: RePEc:wsi:wschap:9789814689809_0004
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