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Diversification benefits under multivariate second order regular variation

Author

Listed:
  • Das, Bikramjit

    (Singapore University of Technology and Design)

  • Kratz, Marie

    (ESSEC Research Center, ESSEC Business School)

Abstract

We analyze risk diversification in a portfolio of heavy-tailed risk factors under the assumption of second order multivariate regular variation. Asymptotic limits for a measure of diversification benefit are obtained when considering, for instance, the value-at-risk . The asymptotic limits are computed in a few examples exhibiting a variety of different assumptions made on marginal or joint distributions. This study ties up existing related results available in the literature under a broader umbrella.

Suggested Citation

  • Das, Bikramjit & Kratz, Marie, 2017. "Diversification benefits under multivariate second order regular variation," ESSEC Working Papers WP1706, ESSEC Research Center, ESSEC Business School.
    • Handle: RePEc:ebg:essewp:dr-17006
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    References listed on IDEAS

    as
    1. Hua, Lei & Joe, Harry, 2011. "Second order regular variation and conditional tail expectation of multiple risks," Insurance: Mathematics and Economics, Elsevier, vol. 49(3), pages 537-546.
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    8. Ibragimov, Rustam & Jaffee, Dwight & Walden, Johan, 2011. "Diversification disasters," Journal of Financial Economics, Elsevier, vol. 99(2), pages 333-348, February.
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    More about this item

    Keywords

    asymptotic theory; diversification benefit; heavy tail; risk concentration; second order regular variation; value-at-risk;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics

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