An Unexpected Stochastic Dominance: Pareto Distributions, Dependence, and Diversification

• 成果类型: Article
• 署名作者: Chen, Yuyu; Embrechts, Paul; Wang, Ruodu
• 署名单位: University of Melbourne; Swiss Federal Institutes of Technology Domain; ETH Zurich; Swiss Federal Institutes of Technology Domain; ETH Zurich; University of Waterloo
• 刊物名称: OPERATIONS RESEARCH
• ISSN/ISSBN: 0030-364X
• DOI: 10.1287/opre.2022.0505
• 发表日期: 2025
• 关键词: PORTFOLIO DIVERSIFICATION; expected utility; risk-aversion; ECONOMICS

摘要

We find the perhaps surprising inequality that the weighted average of independent and identically distributed Pareto random variables with infinite mean is larger than one such random variable in the sense of first -order stochastic dominance. This result holds for more general models including super-Pareto distributions, negative dependence, and triggering events and yields superadditivity of the risk measure value -at -risk for these models.