Introduction to Risk Parity and Budgeting

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

151 Pages Posted: 2 Jun 2013 Last revised: 30 Nov 2013

See all articles by Thierry Roncalli

Thierry Roncalli

Amundi Asset Management; University of Evry

Date Written: June 1, 2013

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.

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

JEL Classification: G1, G23, C02

Suggested Citation

Roncalli, Thierry, Introduction to Risk Parity and Budgeting (June 1, 2013). Roncalli T. (2013), Introduction to Risk Parity and Budgeting, Chapman & Hall/CRC Financial Mathematics Series. Available at SSRN: https://ssrn.com/abstract=2272973 or http://dx.doi.org/10.2139/ssrn.2272973

Thierry Roncalli (Contact Author)

Amundi Asset Management ( email )

90 Boulevard Pasteur
Paris, 75015
France

University of Evry ( email )

Boulevard Francois Mitterrand
F-91025 Evry Cedex
France

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