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Introducing Variety in Risk Management

Author

Listed:
  • Fabrizio Lillo

    (Observatory of Complex Systems, Palermo University)

  • Rosario N. Mantegna

    (Observatory of Complex Systems, Palermo University)

  • Jean-Philippe Bouchaud

    (Science & Finance, Capital Fund Management
    CEA Saclay;)

  • Marc Potters

    (Science & Finance, Capital Fund Management)

Abstract

We review the recently introduced concept of variety of a financial portfolio and we sketch its importance for risk control purposes. The empirical behaviour of variety, correlation, exceedance correlation and asymmetry of the probability density function of daily returns is discussed. The results obtained are compared with the ones of a one-factor model showing strengths and limitations of this model.

Suggested Citation

  • Fabrizio Lillo & Rosario N. Mantegna & Jean-Philippe Bouchaud & Marc Potters, 2001. "Introducing Variety in Risk Management," Science & Finance (CFM) working paper archive 0107208, Science & Finance, Capital Fund Management.
  • Handle: RePEc:sfi:sfiwpa:0107208
    as

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    References listed on IDEAS

    as
    1. Fabrizio Lillo & Rosario N. Mantegna, 2000. "Variety and Volatility in Financial Markets," Papers cond-mat/0006065, arXiv.org.
    2. Pierre Cizeau & Marc Potters & Jean-Philippe Bouchaud, 2000. "Correlation structure of extreme stock returns," Papers cond-mat/0006034, arXiv.org, revised Jan 2001.
    3. François Longin & Bruno Solnik, 2001. "Extreme Correlation of International Equity Markets," Journal of Finance, American Finance Association, vol. 56(2), pages 649-676, April.
    4. P. Cizeau & M. Potters & J-P. Bouchaud, 2001. "Correlation structure of extreme stock returns," Quantitative Finance, Taylor & Francis Journals, vol. 1(2), pages 217-222.
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    More about this item

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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