Introduction to Risk Parity and Budgeting

Roncalli, Thierry (2013): Introduction to Risk Parity and Budgeting.

Abstract

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 popular financial model of investment after the global financial crisis in 2008. Today, pension funds and institutional investors are using this approach in the development of smart indexing and the redefinition of long-term investment policies.

Introduction to Risk Parity and Budgeting provides an up-to-date treatment of this alternative method to Markowitz optimization. It builds financial exposure to equities and commodities, considers credit risk in the management of bond portfolios, and designs long-term investment policy.

This book contains the solutions of tutorial exercices which are included in Introduction to Risk Parity and Budgeting.

• Item Type: MPRA Paper
• Language: English
• Keywords: Risk parity, risk budgeting, portfolio optimization, CAPM, risk premium, beta, Sharpe ratio, shrinkage methods, convex risk measure, Euler allocation, marginal risk, risk contribution, value-at-risk, volatility, expected shortfall, Cornish Fisher expansion, risk factors, smart beta
• Subjects: C - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical Methods; G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions

References

Roncalli T. (2013), Introduction to Risk Parity and Budgeting, Chapman & Hall/CRC Financial Mathematics Series