Coherent Diversification Measures in Portfolio Theory: An Axiomatic Foundation

Nettey Boevi Gilles Koumou () and Georges Dionne ()

Risks, 2022, vol. 10, issue 11, 1-19

Abstract: We provide an axiomatic foundation for the measurement of correlation diversification in a one-period portfolio model. We propose a set of eight desirable axioms for this class of diversification measures. We name the measures satisfying these axioms coherent correlation diversification measures . We study the compatibility of our axioms with rank-dependent expected utility theory. We also test them against the two most frequently used methods for measuring correlation diversification in portfolio theory: portfolio variance and the diversification ratio. Lastly, we provide an example of a functional representation of a coherent correlation diversification measure.

Keywords: portfolio theory; diversification measurement; correlation diversification; diversification ratio; portfolio variance; rank-dependent expected utility theory (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Coherent Diversification Measures in Portfolio Theory: An Axiomatic Foundation (2021)
Working Paper: Coherent diversification measures in portfolio theory: An axiomatic foundation (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:10:y:2022:i:11:p:205-:d:954228

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