Does value-at-risk encourage diversification when losses follow tempered stable or more general Lévy processes?

Michael Grabchak ()

Annals of Finance, 2014, vol. 10, issue 4, 553-568

Abstract: In this paper, we address the question of when portfolio selection based on Value-at-risk encourages diversification [in the sense of Ibragimov (Quant Financ 9(5):565–580, 2009 )]. Specifically, we give sufficient conditions for the case when losses follow a Lévy process. When the process has finite variation, these conditions are also necessary. We then specialize our results to the case when losses have tempered stable distributions. Copyright Springer-Verlag Berlin Heidelberg 2014

Keywords: Value-at-risk; Diversification; Lévy processes; Tempered stable distributions; Heavy tails; C16; G11; G18 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/s10436-014-0249-6

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