Post by Harald Lohre on Jan 13, 2012 10:42:47 GMT 4
Diversifying Risk Parity
Harald Lohre
Deka Investment GmbH
Heiko Opfer
University of Giessen - Center for Finance and Banking
Gabor Orszag
Deka Investment GmbH
January 10, 2012
Abstract:
Striving for maximum diversification we follow Meucci (2009) in measuring and managing a multi-asset class portfolio. Under this paradigm the maximum diversification portfolio is equivalent to a risk parity strategy with respect to the uncorrelated risk sources embedded in the underlying portfolio assets. Our paper characterizes the mechanics and properties of this diversified risk parity strategy. Moreover, we explore the risk and diversification characteristics of traditional risk-based asset allocation techniques like 1/N, minimum-variance, risk parity, or the most-diversified portfolio and demonstrate the diversified risk parity strategy to be quite meaningful when benchmarked against these alternatives.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1982668_code694027.pdf?abstractid=1974446&mirid=1
Harald Lohre
Deka Investment GmbH
Heiko Opfer
University of Giessen - Center for Finance and Banking
Gabor Orszag
Deka Investment GmbH
January 10, 2012
Abstract:
Striving for maximum diversification we follow Meucci (2009) in measuring and managing a multi-asset class portfolio. Under this paradigm the maximum diversification portfolio is equivalent to a risk parity strategy with respect to the uncorrelated risk sources embedded in the underlying portfolio assets. Our paper characterizes the mechanics and properties of this diversified risk parity strategy. Moreover, we explore the risk and diversification characteristics of traditional risk-based asset allocation techniques like 1/N, minimum-variance, risk parity, or the most-diversified portfolio and demonstrate the diversified risk parity strategy to be quite meaningful when benchmarked against these alternatives.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1982668_code694027.pdf?abstractid=1974446&mirid=1