Ordering of multivariate risk models with respect to extreme portfolio losses

Mainik Georg and Rüschendorf Ludger
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Rüschendorf Ludger: University of Freiburg, Mathematische Stochastik, Freiburg, Deutschland

Statistics & Risk Modeling, 2012, vol. 29, issue 1, 73-106

Abstract: The notion of asymptotic portfolio loss order is introduced to compare multivariate stochastic risk models with respect to extreme portfolio losses. In the framework of multivariate regular variation comparison criteria are derived in terms of spectral measures. This allows for analytical and numerical verification in applications. Worst and best case dependence structures with respect to the asymptotic portfolio loss order are determined. Comparison criteria in terms of further stochastic ordering notions are derived. The examples include elliptical distributions and multivariate regularly varying models with Gumbel, Archimedean, and Galambos copulas. Particular interest is paid to the inverse influence of dependence on the diversification of risks with infinite expectations.

Keywords: stochastic ordering; portfolio loss; multivariate regular variation; spectral measure; extreme risk index (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1524/strm.2012.1103

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