219 - Dependence structure of risk factors and diversification effects

DNB Working Papers
Publicatiedatum 31 juli 2009

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