Risk Budgeting Portfolios from Simulations

Costa, Bernardo Freitas Paulo da; Pesenti, Silvana M.; Targino, Rodrigo S.

doi:10.2139/ssrn.4038514

Cited by 1 publication

(2 citation statements)

References 36 publications

(48 reference statements)

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“…Interactions with the audience in these seminars helped us improve the paper. In particular, we were contacted by the authors of Freitas et al (2023) following our talk at King's College who developed related ideas at the same time.…”

Section: A C K N O W L E D G M E N T Smentioning

confidence: 99%

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Risk Budgeting portfolios: Existence and computation

Cetingoz,

Fermanian,

Guéant

2023

Mathematical Finance

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Modern portfolio theory has provided for decades the main framework for optimizing portfolios. Because of its sensitivity to small changes in input parameters, especially expected returns, the mean–variance framework proposed by Markowitz in 1952 has, however, been challenged by new construction methods that are purely based on risk. Among risk‐based methods, the most popular ones are Minimum Variance, Maximum Diversification, and Risk Budgeting (especially Equal Risk Contribution) portfolios. Despite some drawbacks, Risk Budgeting is particularly attracting because of its versatility: based on Euler's homogeneous function theorem, it can indeed be used with a wide range of risk measures. This paper presents mathematical results regarding the existence and the uniqueness of Risk Budgeting portfolios for a very wide spectrum of risk measures and shows that, for many of them, computing the weights of Risk Budgeting portfolios only requires a standard stochastic algorithm.

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Section: A C K N O W L E D G M E N T Smentioning

confidence: 99%

“…In particular, we were contacted by the authors of Freitas et al. (2023) following our talk at King's College who developed related ideas at the same time.…”

Section: Acknowledgmentsmentioning

confidence: 99%