This paper analyzes portfolio diversification for nonlinear transformations of heavy-tailed risks. It is shown that … diversification of a portfolio of convex functions of heavy-tailed risks increases the portfolio’s riskiness if expectations of these … risks are infinite. In contrast, for concave functions of heavy-tailed risks with finite expectations, the stylized fact …

diversification is always preferable is reversed for extremely heavy-tailed risks or returns. The stylized facts on diversification …

stylized fact that portfolio diversification is preferable is reversed for extremely heavy-tailed risks or returns. However …