Portfolio Diversification under Independent Fat Tailed Risks

Rustam Ibragimov and Artem Prokhorov

Chapter 2 in Heavy Tails and Copulas:Topics in Dependence Modelling in Economics and Finance, 2017, pp 19-45 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This chapter looks at Value-at-Risk (VaR) of a diversified portfolio when its components are independent and have a heavy tailed distribution. We use a notion of diversification based on majorization theory and show that the conventional wisdom that portfolio diversification reduces risk does not hold for extremely heavy-tailed returns.

Keywords: Heavy-Tailed Distribution; Copulas; Tail Dependence; Majorization Theory; Financial Contagion; Crises (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.worldscientific.com/doi/pdf/10.1142/9789814689809_0002 (application/pdf)
https://www.worldscientific.com/doi/abs/10.1142/9789814689809_0002 (text/html)
Ebook Access is available upon purchase.

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:wsi:wschap:9789814689809_0002

Ordering information: This item can be ordered from

Access Statistics for this chapter

More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().