Heavy-tailed distributions and robustness in economics and finance
diversificationextreme valueslog-concave distributionriskrisk measurerisk sharingrobust inferencestable distributionvalue-at-risk
Research exposition (monographs, survey articles) pertaining to statistics (62-02) Statistics of extreme values; tail inference (62G32) Nonparametric robustness (62G35) Applications of statistics to actuarial sciences and financial mathematics (62P05) Applications of statistics to economics (62P20) Research exposition (monographs, survey articles) pertaining to game theory, economics, and finance (91-02) Statistical methods; risk measures (91G70)
Diversification advantage means that the capital invested in several assets has a smaller risk than the same capital invested in a single asset. While this phenomenon is the case for normally distributed asset returns, the diversification advantages may not exist or even turn into disadvantages in case of heavy-tailed distributions. The importance of heavy-tailed laws in finance and insurance is well known and also is confirmed in the last chapter of this book that discusses robust inference and presents case studies. The first two chapters are devoted to the analysis of diversification benefits in terms of the Value-at-Risk, which is a commonly used risk measure based on the quantile of the distribution for the positive linear combination of assets. On the theoretical side, the authors discuss diversification effects for distributions that arise as convolution of symmetric stable laws with index \(\alpha\in(0,1)\), another family consists of convolutions of such laws with \(\alpha\in(1,2]\), and the third family consists of log-concave distributions. Also convolutions of members of the first two families with the last one are considered. The obtained results are illustrated using a number of applied problems from insurance, reinsurance, risk pooling and sharing, and growth models. It is shown that some situations may lead to diversification traps and diversification disasters depending on the degree of heavy tailedness. The inference part concentrates on recently developed robust approaches. The book is a useful summary of various results from the literature concerning heavy-tailed distributions in economics and finance with emphasis on applications.
- Income inequality and price elasticity of market demand: the case of crossing Lorenz curves
- Compound unimodal distributions for insurance losses
- Equity returns and sentiment
- Predictability of cryptocurrency returns: evidence from robust tests
- On a heavy-tailed distribution and the stability of an equilibrium in a distributed delay symmetric network
- Volatility filtering in estimation of kurtosis (and variance)
- Operator equations of branching random walks
- Modulating bifurcations in a self-sustained birhythmic system by \(\alpha\)-stable Lévy noise and time delay
- A Beran-inspired estimator for the Weibull-type tail coefficient
- On the robustness of location estimators in models of firm growth under heavy-tailedness
- A note on utility indifference pricing
- Portfolio diversification and value at risk under thick-tailedness†
- Heavy tails and copulas. Topics in dependence modelling in economics and finance
- On the finiteness and tails of perpetuities under a Lamperti-Kiu map
- Fitting insurance and economic data with outliers: a flexible approach based on finite mixtures of contaminated gamma distributions
- A new look at the inverse Gaussian distribution with applications to insurance and economic data
- Characterization of the tail behavior of a class of BEKK processes: a stochastic recurrence equation approach
- The Fundamentals of Heavy Tails
- Univariate stable distributions. Models for heavy tailed data
- On the three-step non-Gaussian quasi-maximum likelihood estimation of heavy-tailed double autoregressive models
- Heavy-Tail Phenomena
- Size distributions reconsidered
- Robust inference in conditionally heteroskedastic autoregressions
- Pro‐cyclicality beyond business cycle
- Robust Bayesian choice
- Maximum likelihood estimation for \(\alpha\)-stable double autoregressive models
- New robust inference for predictive regressions
- Alternative skew Laplace scale mixtures for modeling data exhibiting high-peaked and heavy-tailed traits
- The changing landscape of cyber risk: an empirical analysis of loss severity and tail dynamics
- Detection and inference of changes in high-dimensional linear regression with nonsparse structures
- Risk exchange under infinite-mean Pareto models
- Robust estimation for dynamic spatial autoregression models with nearly optimal rates
- A Bayesian approach for modeling heavy tailed insurance claim data based on the contaminated lognormal distribution
- Modeling heavy-tails with two-piece Burr distributions via conditional values-at-risk
- When Heavy Tails Disrupt Statistical Inference
- Diversification for infinite-mean Pareto models without risk aversion
- Robust inference on income inequality: t- statistic based approach
- Efficient private SCO for heavy-tailed data via averaged clipping
- Convolution-t distributions
- Cluster GARCH
- Tail-robust factor modelling of vector and tensor time series in high dimensions
- Bounds for path-dependent options
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