Risk concentration under second order regular variation (Q2198597)

The article assesses the limit behaviour of the measure of risk concentration for value-at-risk of the sum of risk factors under the assumption that the sum is second order regularly varying and identifies conditions under which multivariate second order regularly variation for a vector would imply second order regular variation property for the sum of its components, so that the rate of convergence of risk concentration measures could be obtained in such cases. An alternate definition of univariate second order regular variation is given. Assuming second order regular variation for the sum of the components of a random vector in \(\mathbb{R}_{+}^{d},\) the convergence rate of the diversification benefit for the value-at-risk measure is found. The effect of multivariate second order regular variation on aggregation is explored and sufficient conditions on a vector satisfying multivariate second order regular variation for the sum of its components to satisfy a second order regular variation property are provided and the conditions are shown not to be necessary. Examples and illustrations are provided throughout to explain the theoretical results in the article.