The use of Archimedian copulas to model portfolio allocations. (English) Zbl 1072.91022

Summary: A copula is a means of generating an \(n\)-variate distribution function from an arbitrary set of n univariate distributions. For the class of portfolio allocators that are risk averse, we use the copula approach to identify a large set of \(n\)-variate asset return distributions such that the relative magnitudes of portfolio shares can be ordered according to the reversed hazard rate ordering of the \(n\) underlying univariate distributions. We also establish conditions under which first- and second-degree dominating shifts in one of the \(n\) underlying univariate distributions increase allocation to that asset. Our findings exploit separability properties possessed by the Archimedean family of copulas.


91B28 Finance etc. (MSC2000)
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