Minimizing volatility increases large risks

D. Sornette, J. V. Andersen and P. Simonetti
Additional contact information
D. Sornette: CNRS-University of Nice and UCLA
J. V. Andersen: Nordita, Copenhagen
P. Simonetti: USC

Papers from arXiv.org

Abstract: We introduce a faithful representation of the heavy tail multivariate distribution of asset returns, as parsimonous as the Gaussian framework. Using calculation techniques of functional integration and Feynman diagrams borrowed from particle physics, we characterize precisely, through its cumulants of high order, the distribution of wealth variations of a portfolio composed of an arbitrary mixture of assets. The portfolio which minimizes the variance, i.e. the relatively small risks, often increases larger risks as measured by higher normalized cumulants and by the Value-at-risk.

Date: 1998-11
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Published in International Journal of Theoretical and Applied Finance 3 (3), 523-535 (2000)

Downloads: (external link)
http://arxiv.org/pdf/cond-mat/9811292 Latest version (application/pdf)

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:arx:papers:cond-mat/9811292

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().