Introducing Variety in Risk Management

10 July 2001

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We review the recently introduced concept of variety of a financial portfolio and we sketch its importance for risk control purposes. The empirical behaviour of variety, correlation, exceedance correlation and asymmetry of the probability density function of daily returns is discussed. The results obtained are compared with the ones of a one-factor model showing strengths and limitations of this model.

Authors

Rosario N. Mantegna , Marc Potters , Jean-Philippe Bouchaud , Fabrizio Lillo