In this paper we discuss a detailed methodology for dealing with Risk parity in a parametric context. In particular, we use the Independent Component Analysis for a linear decomposition of portfolio risk factors. Each Independent Component is modeled with the Mixed Tempered Stable distribution. Risk parity optimal portfolio weights are calculated for three risk measures: Volatility, modified Value At Risk and modified Expected Shortfall. Empirical analysis is discussed in terms of out-of-sample performance and portfolio diversification.
Risk parity for mixed tempered stable distributed sources of risk / L. Mercuri, E. Rroji. - In: ANNALS OF OPERATIONS RESEARCH. - ISSN 0254-5330. - 260:1/2 (special issue: Advances of OR in Commodities and Financial Modelling)(2018 Jan), pp. 375-393. [10.1007/s10479-016-2394-y]
Risk parity for mixed tempered stable distributed sources of risk
L. MercuriPrimo
;
2018
Abstract
In this paper we discuss a detailed methodology for dealing with Risk parity in a parametric context. In particular, we use the Independent Component Analysis for a linear decomposition of portfolio risk factors. Each Independent Component is modeled with the Mixed Tempered Stable distribution. Risk parity optimal portfolio weights are calculated for three risk measures: Volatility, modified Value At Risk and modified Expected Shortfall. Empirical analysis is discussed in terms of out-of-sample performance and portfolio diversification.File | Dimensione | Formato | |
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