Comparison of conditional distributions in portfolios of dependent risks

Abstract

Given a portfolio of risks, we study the marginal behavior of the i-th risk under an adverse event, such as an unusually large loss in the portfolio or, in the case of a portfolio with a positive dependence structure, to an unusually large loss for another risk. By considering some particular conditional risk distributions, we formalize, in several ways, the intuition that the i-th component of the portfolio is riskier when it is part of a positive dependent random vector than when it is considered alone. We also study, given two random vectors with a xed dependence structure, the circumstances under which the existence of some stochastic orderings among their marginals implies an ordering among the corresponding conditional risk distributions.