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.

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Keywords Aggregated risk, Diversification effect, Multivariate extreme value theory
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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