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The paper characterizes first and second order tail behavior ofconvolutions of i.i.d. heavy tailed random variables with supporton the real line. The result is applied to the problem of riskdiversification in portfolio analysis and to the estimation of theparameter in a MA(1) model.
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consumption and portfolio theory shows that the younger generations should have the higher equity exposure due to their human …
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returns. The theory of regular variation and extreme values provides a model for this feature of financial data. We first … review this theory and subsequently study the problem of portfolio diversification in particular. We show that if the …
Persistent link: https://www.econbiz.de/10011317458
We characterize the investor’s optimal portfolio allocation subject to a budget constraint and a probabilistic VaR constraint in complete markets environments with a finite number of states. The set of feasible portfolios might no longer be connected or convex, while the number of local optima...
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