Dependence structure of risk factors and diversification effects
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.
|Keywords||Aggregated risk, Diversification effect, Multivariate extreme value theory|
|Persistent URL||dx.doi.org/10.1016/j.insmatheco.2010.01.010, hdl.handle.net/1765/76532|
|Journal||Insurance: Mathematics and Economics|
Zhou, C. (2010). Dependence structure of risk factors and diversification effects. Insurance: Mathematics and Economics, 46(3), 531–540. doi:10.1016/j.insmatheco.2010.01.010