GriveauBillion, Théophile and Richard, JeanCharles and Roncalli, Thierry (2013): A Fast Algorithm for Computing Highdimensional Risk Parity Portfolios.
This is the latest version of this item.
Preview 
PDF
MPRA_paper_49844.pdf Download (503kB)  Preview 
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 

Original Title:  A Fast Algorithm for Computing Highdimensional Risk Parity Portfolios 
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 
Item ID:  49844 
Depositing User:  Thierry Roncalli 
Date Deposited:  16 Sep 2013 19:42 
Last Modified:  26 Sep 2019 12:02 
References:  Bruder B. and Roncalli T. (2012), Managing Risk Exposures using the Risk Budgeting Approach, SSRN, www.ssrn.com/abstract=2009778. Cazalet Z., Grison P. and Roncalli T. (2013), The Smart Beta Indexing Puzzle, SSRN, www.ssrn.com/abstract=2294395. Chaves D.B., Hsu J.C., Li F. and Shakernia O. (2012), Efficient Algorithms for Computing Risk Parity Portfolio Weights, Journal of Investing, 21(3), pp. 150163. Davies P.I. and Higham N.J. (2000), Numerically Stable Generation of Correlation Matrices and Their Factors, BIT Numerical Mathematics, 7(2), pp. 163182. Friedman J., Hastie T. and Tibshirani R. (2010), Regularization Paths for Generalized Linear Models via Coordinate Descent, Journal of Statistical Software, 33(1), pp. 122. Maillard S., Roncalli T. and Teïletche J. (2010), The Properties of Equally Weighted Risk Contribution Portfolios, Journal of Portfolio Management, 36(4), pp. 6070. Nesterov Y. (2004), Introductory Lectures on Convex Optimization: A Basic Course, Applied Optimization, 87, Kluwer Academic Publishers. Roncalli T. (2013), Introduction to Risk Parity and Budgeting, Chapman & Hall/CRC Financial Mathematics Series. Roncalli T. (2013), Introducing Expected Returns in Risk Parity Portfolios: A New Framework for Tactical and Strategic Asset Allocation, SSRN, www.ssrn.com/abstract=2321309. Spinu F. (2013), An Algorithm for the Computation of Risk Parity Weights, SSRN, www.ssrn.com/abstract=2297383. Tseng P. (2001), Convergence of a Block Coordinate Descent Method for Nondifferentiable Minimization, Journal of Optimization Theory and Applications, 109(3), pp. 475494. Yen Y.M. and Yen TS. (2013), Solving Norm Constrained Portfolio Optimization via CoordinateWise Descent Algorithms, Computational Statistics and Data Analysis, forthcoming. 
URI:  https://mpra.ub.unimuenchen.de/id/eprint/49844 
Available Versions of this Item

A Fast Algorithm for Computing Highdimensional Risk Parity Portfolios. (deposited 14 Sep 2013 14:12)
 A Fast Algorithm for Computing Highdimensional Risk Parity Portfolios. (deposited 16 Sep 2013 19:42) [Currently Displayed]