Portfolio construction and risk budgeting are the focus of many studies by academics and practitioners. In particular, diversification has spawn much interest and has been defined very differently. In this paper, we analyze a method to achieve portfolio diversification based on the decomposition...

The influence of the CAPM theory on the financial theory of investment has increased with the development of passive management. Today, equity or fixed-income market portfolios can easily be defined using equity and fixed-income indexes. These indexes also play an important role in active...

Although portfolio management didn't change much during the 40 years after the seminal works of Markowitz and Sharpe, the development of risk budgeting techniques marked an important milestone in the deepening of the relationship between risk and asset management. Risk parity then became a...

To implement strategic asset allocation, we must determine risk and return expectations for the various asset classes. Starting from the paradigm that long-run asset returns are determined by the long-run fundamentals of the economy, a fair value approach to building expectations is crucial....

In this paper we propose a coordinate descent algorithm for solving high dimensional risk parity problems. We show that this algorithm converges and is very fast even with large covariance matrices (n500). Comparison with existing algorithms also shows that it is one of the most efficient...

In this paper, we show that copulas are a very powerful tool for risk management since it fulfills one of its main goals: the modelling of dependence between the individual risks. That is why this approach is an open field for risk

Hedge fund replication based on factor models is encountering growing interest. In this paper, we investigate the implications of substituting standard rolling windows regressions, which appear ad-hoc, with more efficient methodologies like the Kalman Filter. We show that the copycats...

In this paper, we use copulas to define multivariate risk - neutral distributions. We can then derive general pricing formulas for multi - asset options and best possible bounds with given volatility smiles. Finally, we then apply the copula framework to define 'forward-looking' indicators of...

In this paper, we address the problem of incorporating default dependency in intensity - based credit risk models. Following the works of Li [2000], Giesecke [2001] and Schonbucher and Schubert [2001], we use copulas to model the joint distribution of the default times. Two approaches are...