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Weak comonotonicity

Ruodu Wang and Ričardas Zitikis

European Journal of Operational Research, 2020, vol. 282, issue 1, 386-397

Abstract: The classical notion of comonotonicity has played a pivotal role when solving diverse problems in economics, finance, and insurance. In various practical problems, however, this notion of extreme positive dependence structure is overly restrictive and sometimes unrealistic. In the present paper, we put forward a notion of weak comonotonicity, which contains the classical notion of comonotonicity as a special case, and gives rise to necessary and sufficient conditions for a number of optimization problems, such as those arising in portfolio diversification, risk aggregation, and premium calculation. In particular, we show that a combination of weak comonotonicity and weak antimonotonicity with respect to some choices of measures is sufficient for the maximization of Value-at-Risk aggregation, and weak comonotonicity is necessary and sufficient for the Expected Shortfall aggregation. Finally, with the help of weak comonotonicity acting as an intermediate notion of dependence between the extreme cases of no dependence and strong comonotonicity, we give a natural solution to a risk-sharing problem.

Keywords: Finance; Comonotonicity; Risk aggregation; Conditional beta (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:282:y:2020:i:1:p:386-397

DOI: 10.1016/j.ejor.2019.09.019

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European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

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