In this paper, we study the aggregated risk from dependent risk factors under the multivariate Extreme Value theory (EVT) framework. We consider the heavy-tailness of the risk factors as well a non-parametric tail dependence structure. This allows a large scope of models on the dependency. We assess the Value-at-Risk of a diversified portfolio constructed from dependent risk factors. Moreover, we examine the diversification effects under this setup. Key words: Aggregated risk, diversification effect, multivariate Extreme Value Theory
JEL: G11, C14
219 - Dependence structure of risk factors and diversification effects
- DNB Working Papers
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Publicatiedatum 31 juli 2009