An Algorithm for Computing Risk Parity Weights
6 Pages Posted: 24 Jul 2013 Last revised: 6 Dec 2018
Date Written: July 30, 2013
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 contribution, algorithm, Newton method, convex optimization
JEL Classification: C61, G11
Suggested Citation: Suggested Citation