Abstract:We propose a novel risk matrix to characterize the optimal portfolio choice of an investor with tail concerns. The diagonal of the matrix contains the Value-at-Risk of each asset in the portfolio and the off-diagonal the pairwise ∆CoVaR measures reflecting tail connections between assets. First, we derive the conditions under which the associated quadratic risk function has a closed-form solution. Second, we examine the relationship between portfolio risk and eigenvector centrality. Third, we show that portfol… Show more
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