The Riskier the Assets, the Riskier the Portfolios: Pitfalls and Misinterpretations

20 Pages Posted: 16 Jan 2003

See all articles by Luisa Tibiletti

Luisa Tibiletti

University of Turin - Department of Management

Date Written: November 18, 2002

Abstract

As the dependence structure (i.e. the copula) among the assets is fixed, one might think that the riskier the assets, the riskier the portfolio. Surprisingly enough, this conjecture turns out to be false even for coherent risk measures and normal returns. We show that two conditions are able to preserve risk ordering under the portfolio: Convexity for the risk measure and conditional increasingness for the copula. Eventually, conditional increasingness is checked for the most popular families of copulas used in financial modelling and actuarial sciences.

Keywords: Coherent measures of risk, Portfolio risk models, Copula, Multivariate Stochastic Dominance

JEL Classification: G31, G11, C15

Suggested Citation

Tibiletti, Luisa, The Riskier the Assets, the Riskier the Portfolios: Pitfalls and Misinterpretations (November 18, 2002). Available at SSRN: https://ssrn.com/abstract=339900 or http://dx.doi.org/10.2139/ssrn.339900

Luisa Tibiletti (Contact Author)

University of Turin - Department of Management ( email )

C.so Unione Sovietica, 218 bis
Turin, Turin 10100
Italy
39-11-670-6229 (Phone)
39-11-670-6238 (Fax)

HOME PAGE: http://www.management.unito.it/tibiletti

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