Portfolio construction and risk budgeting are the focus of many studies by academics and practitioners. In particular … diversification based on the decomposition of the portfolio's risk into risk factor contributions. First, we expose the relationship … between risk factor and asset contributions. Secondly, we formulate the diversification problem in terms of risk factors as an …

Risk parity is an asset allocation strategy designed so each asset class contributes equally to overall portfolio risk … (as measured by volatility). While risk parity offers potential advantages, its success hinges on key assumptions and a … favorable environment for bonds. Like the traditional asset allocation approach it seeks to supplant, risk parity demands a long …

The concept of second-order risk operationalizes the estimation risk in portfolio construction induced by model … uncertainty. We study its contribution to the realized volatility of recently developed risk parity strategies. For each strategy …, we derive closed-form solutions for the second-order risk, subsequently illustrated in empirical analysis based on real …

Risk Parity (RP), also called equally weighted risk contribution, is a recent approach to risk diversification for … as to make the total risk contributions of all assets equal among them. We show here that the Risk Parity approach is … theoretically dominated by an alternative similar approach that does not actually require equally weighted risk contribution of all …

In line with regulations and common risk management practice, the credit risk of a portfolio is managed via its … computations to exposure computations, firms find it expedient to compute these exposures under the risk neutral measure.Here we … show that exposures computed under the risk neutral measure are essentially arbitrary. They depend on the choice of …

The risks embedded in asset-based risk parity portfolios are explored using a simple, economically motivated approach … asset-based risk parity portfolios. Investors in risk parity can use this approach for more robust portfolio construction … and for benchmarking and differentiating various risk parity approaches …