Risk Parity with Expectiles

29 Pages Posted: 15 Jul 2019

See all articles by Fabio Bellini

Fabio Bellini

University of Milano Bicocca - Dipartimento di Statistica e Metodi Quantitativi

Francesco Cesarone

Rome Tre University - Department of Business Studies

Christian Colombo

Department of Statistics and Quantitative Methods University of Milano-Bicocca

Fabio Tardella

Faculty of Economics - Sapienza University of Rome

Date Written: July 14, 2019

Abstract

A recent popular approach to portfolio selection aims at diversifying risk by looking for the so called Risk Parity portfolios. These are defined by the condition that the risk contributions of all assets to the global risk of the portfolio are equal. The Risk Parity approach has been originally introduced for the volatility risk measure. In this paper we consider expectiles as risk measures, we refine results on their differentiability and additivity, and we show how to define Risk Parity portfolios when the expectiles are used as coherent risk measures. Furthermore, we propose several methods for practically finding Risk Parity portfolios with respect to expectiles and we compare their accuracy and efficiency on real-world data. Expectiles are also used as risk measures in the classical risk-return approach to portfolio selection, where we present a new linear programming formulation.

Keywords: Risk Allocation, Expectiles, Risk Parity, Portfolio Selection, Risk Diversification

Suggested Citation

Bellini, Fabio and Cesarone, Francesco and Colombo, Christian and Tardella, Fabio, Risk Parity with Expectiles (July 14, 2019). Available at SSRN: https://ssrn.com/abstract=3419747 or http://dx.doi.org/10.2139/ssrn.3419747

Fabio Bellini (Contact Author)

University of Milano Bicocca - Dipartimento di Statistica e Metodi Quantitativi ( email )

Milano, Milan
Italy

Francesco Cesarone

Rome Tre University - Department of Business Studies ( email )

Via Silvio D'Amico 77
Via Silvio D'Amico 77
Rome, TN RM 00145
Italy

HOME PAGE: http://host.uniroma3.it/docenti/cesarone/papers.htm

Christian Colombo

Department of Statistics and Quantitative Methods University of Milano-Bicocca ( email )

Piazza dell’Ateneo Nuovo 1, 20126 Milano
Milano, 20126
Italy

Fabio Tardella

Faculty of Economics - Sapienza University of Rome ( email )

Via del Castro Laurenziano, 9
Roma, Rome 00161
Italy

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