Risk Diversification for Extremal Events: General Properties, Estimation, and Model Comparison

Georg Mainik (ETH Zürich)
Thursday, November 17, 2011 - 4:00pm
Rudower Chaussee 25, Room 1.115

The central topic of this talk is the diversification of catastrophic losses. Under the assumption of multivariate regular variation, the asymptotic portfolio loss distribution is characterized by a functional of the portfolio weights, the tail index, and the so-called spectral measure representing the dependence structure in the tail region. Further results encompass the general properties of the optimization problem, the estimation of the portfolio risk functional, and the ordering of models with respect to the asymptotic behaviour of portfolio losses. Particular interest is paid to the occurrence of negative diversification effects, compensation of gains and losses, uniform convergence of estimates, and the influence of dependence on model ordering.