Risk concentration and diversification: Second-order properties

Matthias Degen, Dominik D. Lambrigger and Johan Segers

Insurance: Mathematics and Economics, 2010, vol. 46, issue 3, 541-546

Abstract: The quantification of diversification benefits due to risk aggregation plays a prominent role in the (regulatory) capital management of large firms within the financial industry. However, the complexity of today's risk landscape makes a quantifiable reduction of risk concentration a challenging task. In the present paper we discuss some of the issues that may arise. The theory of second-order regular variation and second-order subexponentiality provides the ideal methodological framework to derive second-order approximations for the risk concentration and the diversification benefit.

Keywords: IE43; Diversification; Second-order; regular; variation; Second-order; subexponentiality; Subadditivity; Value-at-Risk (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:46:y:2010:i:3:p:541-546

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