European Business Schools Librarian's Group

ESSEC Working Papers,
ESSEC Research Center, ESSEC Business School

No WP1706: Diversification benefits under multivariate second order regular variation

Bikramjit Das () and Marie Kratz ()
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Bikramjit Das: Singapore University of Technology and Design, Postal: Singapore University of Technology and Design, 8 Somapah Road, Singapore 487372,
Marie Kratz: ESSEC Research Center, ESSEC Business School, Postal: ESSEC Research Center, BP 105, 95021 Cergy, France

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.

Keywords: asymptotic theory; diversification benefit; heavy tail; risk concentration; second order regular variation; value-at-risk

JEL-codes: C02

24 pages, April 2017

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