Risk Concentration and Diversification: Second-Order Properties

Matthias Degen, Dominik D. Lambrigger and Johan Segers

Papers from arXiv.org

Abstract: The quantification of diversification benefits due to risk aggregation plays a prominent role in the (regulatory) capital management of large firms within the financial industry. However, the complexity of today's risk landscape makes a quantifiable reduction of risk concentration a challenging task. In the present paper we discuss some of the issues that may arise. The theory of second-order regular variation and second-order subexponentiality provides the ideal methodological framework to derive second-order approximations for the risk concentration and the diversification benefit.

Date: 2009-10, Revised 2009-12
New Economics Papers: this item is included in nep-reg and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:0910.2367

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