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Ordering of multivariate risk models with respect to extreme portfolio losses

Author

Listed:
  • Mainik Georg
  • Rüschendorf Ludger

    (University of Freiburg, Mathematische Stochastik, Freiburg, Deutschland)

Abstract

The notion of asymptotic portfolio loss order is introduced to compare multivariate stochastic risk models with respect to extreme portfolio losses. In the framework of multivariate regular variation comparison criteria are derived in terms of spectral measures. This allows for analytical and numerical verification in applications. Worst and best case dependence structures with respect to the asymptotic portfolio loss order are determined. Comparison criteria in terms of further stochastic ordering notions are derived. The examples include elliptical distributions and multivariate regularly varying models with Gumbel, Archimedean, and Galambos copulas. Particular interest is paid to the inverse influence of dependence on the diversification of risks with infinite expectations.

Suggested Citation

  • Mainik Georg & Rüschendorf Ludger, 2012. "Ordering of multivariate risk models with respect to extreme portfolio losses," Statistics & Risk Modeling, De Gruyter, vol. 29(1), pages 73-106, March.
    • Handle: RePEc:bpj:strimo:v:29:y:2012:i:1:p:73-106:n:4
    DOI: 10.1524/strm.2012.1103
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    References listed on IDEAS

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    Cited by:

    1. Embrechts, Paul & Puccetti, Giovanni & Rüschendorf, Ludger, 2013. "Model uncertainty and VaR aggregation," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2750-2764.

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