Value-at-risk-efficient portfolios for a class of super- and sub-exponentially decaying assets return distributions

DOI10.1088/1469-7688/4/1/002MaRDI QIDQ4647593zbMATH OpenOpenAlexFDO

Authors Yannick Malevergne, D. Sornette

Publication date 15 January 2019

Published in Quantitative Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/physics/0301009

zbMATH Keywords

assets return distributionsGaussian copulasvalue-at-risk-efficient portfoliosWeibull distribution

Mathematics Subject Classification ID

Applications of statistics to actuarial sciences and financial mathematics (62P05) Portfolio theory (91G10)

Abstract: Using a family of modified Weibull distributions, encompassing both sub-exponentials and super-exponentials, to parameterize the marginal distributions of asset returns and their multivariate generalizations with Gaussian copulas, we offer exact formulas for the tails of the distribution $P(S)$ of returns $S$ of a portfolio of arbitrary composition of these assets. We find that the tail of $P(S)$ is also asymptotically a modified Weibull distribution with a characteristic scale $chi$ function of the asset weights with different functional forms depending on the super- or sub-exponential behavior of the marginals and on the strength of the dependence between the assets. We then treat in details the problem of risk minimization using the Value-at-Risk and Expected-Shortfall which are shown to be (asymptotically) equivalent in this framework.

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Cited in

(10)

• Estimating the tail-dependence coefficient: properties and pitfalls
• On asymmetric generalization of the Weibull distribution by scale-location mixing of normal laws
• The modified Weibull distribution for asset returns
• PORTFOLIO THEORY FOR "FAT TAILS"
• Semi-parametric Bayesian tail risk forecasting incorporating realized measures of volatility
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• Semi-parametric expected shortfall forecasting in financial markets
• Bayesian realized-GARCH models for financial tail risk forecasting incorporating the two-sided Weibull distribution
• Cluster analysis for portfolio optimization
• Portfolio diversification under local and moderate deviations from power laws

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