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arXiv · 0910.2367

Risk Concentration and Diversification: Second-Order Properties

Matthias Degen·Dominik D. Lambrigger·Johan Segers
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Abstract

The quantification of diversification benefits due to risk aggregation plays a prominent role in the (regulatory) capital management of large firms within the financial industry. However, the complexity of today's risk landscape makes a quantifiable reduction of risk concentration a challenging task. In the present paper we discuss some of the issues that may arise. The theory of second-order regular variation and second-order subexponentiality provides the ideal methodological framework to derive second-order approximations for the risk concentration and the diversification benefit.

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Matthias Degen, Dominik D. Lambrigger, Johan Segers. 2009-12-19. Risk Concentration and Diversification: Second-Order Properties. https://arxiv.org/abs/0910.2367

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