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Working Papers (2017), ESSEC Business School

Diversification Benefits Under Multivariate Second Order Regular Variation

DAS S., KRATZ Marie

We analyze risk diversification in a portfolio of heavy-tailed risk factors under the assumption of second order multivariate regular variation. Asymptotic limits for a measure of diversification benefit are obtained when considering, for instance, the value-at-risk. The asymptotic limits are computed in a few examples exhibiting a variety of different assumptions made on marginal or joint distributions. This study ties up existing related results available in the literature under a broader umbrella.

DAS, S. and KRATZ, M. (2017). Diversification Benefits Under Multivariate Second Order Regular Variation. ESSEC Business School.