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 …

The risk parity optimization problem produces portfolios where each asset contributes an equal amount to the overall … portfolio risk. While most work has investigated the problem using all assets, minimal work has investigated the cardinality … formulations at producing portfolios with equal risk contributions of chosen cardinality size. Specifically, the convex formulation …

In this paper, we aim at constructing a global risk model using the term structure from major bond-issuing countries …. The goal is twofold: first this allows quantifying global interest rate risk (level, slope and curvature effects … in a risk parity framework where each country's sensitivity to global interest risk is accounted for. More specifically …

We show that the probability of risk parity beating any other portfolio is more than 50 percent. We also prove that if … portfolio performance is measured by Sharpe ratio, risk parity is the only maximin portfolio when (1) all assets' future Sharpe … assets' future Sharpe ratios is greater than some constant. If portfolio performance is measured by expected return, risk …

While it is often argued that allocation decisions can be best expressed in terms of exposure to rewarded risk factors … uncorrelated underlying risk factors, as opposed to correlated asset returns, can lead to a more efficient framework for measuring … target levels, on a portfolio effective number of bets generates an improvement in out-of-sample risk-adjusted performance …

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 …

This article develops a model that takes into account skewness risk in risk parity portfolios. In this framework, asset …, we obtain analytical formulas for computing asset risk contributions of a given portfolio. Therefore, we define risk … mix policy. When assets exhibit jump risks like the short volatility strategy, we show that skewness-based risk parity …

Most textbook finance literature assumes risk to be the standard deviation of returns (volatility), which is not only … is consistent with investors’ actual perception of risk. Our method is presenting investors return distributions with … different risk characteristics for which they have to state their perceived risk and make investment decisions. Our results hint …