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Dependence structure of risk factors and diversification effects

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  • Zhou, Chen

Abstract

In this paper, we study the aggregated risk from dependent risk factors under the multivariate Extreme Value Theory (EVT) framework. We consider the heavy-tailedness of the risk factors as well as the non-parametric tail dependence structure. This allows a large range of models on the dependence. We assess the Value-at-Risk of a diversified portfolio constructed from dependent risk factors. Moreover, we examine the diversification effects under this setup.

Suggested Citation

  • Zhou, Chen, 2010. "Dependence structure of risk factors and diversification effects," Insurance: Mathematics and Economics, Elsevier, vol. 46(3), pages 531-540, June.
    • Handle: RePEc:eee:insuma:v:46:y:2010:i:3:p:531-540
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    References listed on IDEAS

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