A Fast Algorithm for Computing High-dimensional Risk Parity Portfolios

Griveau-Billion, Théophile and Richard, Jean-Charles and Roncalli, Thierry (2013): A Fast Algorithm for Computing High-dimensional Risk Parity Portfolios.

Abstract

In this paper we propose a cyclical coordinate descent (CCD) algorithm for solving high dimensional risk parity problems. We show that this algorithm converges and is very fast even with large covariance matrices (n > 500). Comparison with existing algorithms also shows that it is one of the most efficient algorithms.

• Item Type: MPRA Paper
• Language: English
• Keywords: Risk parity, risk budgeting, ERC portfolio, cyclical coordinate descent algorithm, lasso
• Subjects: C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C60 - General; G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions

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