Portfolio diversification and value at risk under thick-tailedness

Rustam Ibragimov

Quantitative Finance, 2009, vol. 9, issue 5, 565-580

Abstract: This paper focuses on the study of portfolio diversification and value at risk analysis under heavy-tailedness. We use a notion of diversification based on majorization theory that will be explained in the text. The paper shows that the stylized fact that portfolio diversification is preferable is reversed for extremely heavy-tailed risks or returns. However, the stylized facts on diversification are robust to heavy-tailedness of risks or returns as long as their distributions are moderately heavy-tailed. Extensions of the results to the case of dependence, including convolutions of α-symmetric distributions and models with common shocks are provided.

Keywords: Value at risk; Heavy-tailed risks; Portfolios; Riskiness; Diversification; Risk bounds; Coherent measures of risk (search for similar items in EconPapers)
Date: 2009
References: View complete reference list from CitEc
Citations: View citations in EconPapers (39)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/14697680802629384 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:quantf:v:9:y:2009:i:5:p:565-580

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RQUF20

DOI: 10.1080/14697680802629384

Access Statistics for this article

Quantitative Finance is currently edited by Michael Dempster and Jim Gatheral

More articles in Quantitative Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().