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An Algorithm for Computing Risk Parity Weights

6 Pages Posted: 24 Jul 2013 Last revised: 7 May 2016

Florin Spinu

OMERS Capital Markets

Date Written: July 30, 2013

Abstract

This paper presents an efficient algorithm for computing the allocation weights of the risk parity portfolio (or the more general risk budget portfolio) based on Newton's method. The algorithm is provably convergent, and in dimension < 1000 requires on average less than 5 iterations.

Keywords: risk parity, risk budgeting, Newton's method

JEL Classification: C61, G11

Suggested Citation

Spinu, Florin, An Algorithm for Computing Risk Parity Weights (July 30, 2013). Available at SSRN: https://ssrn.com/abstract=2297383 or http://dx.doi.org/10.2139/ssrn.2297383

Florin Spinu (Contact Author)

OMERS Capital Markets ( email )

One University Avenue
Suite 400
Toronto, Ontario M5J 2P1
Canada

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