Almost exact risk budgeting with return forecasts for portfolio allocation

DOI10.1016/J.ORL.2023.02.002zbMATH Open1525.91155arXiv2210.00969MaRDI QIDQ6161908FDOQ6161908

Authors: Avinash Bhardwaj, Manjesh Kumar Hanawal, Purushottam Parthasarathy 

Publication date: 28 June 2023

Published in: Operations Research Letters (Search for Journal in Brave)

Abstract: In this paper, we revisit the portfolio allocation problem with designated risk-budget [Qian, 2005]. We generalize the problem of arbitrary risk budgets with unequal correlations to one that includes return forecasts and transaction costs while keeping the no-shorting (long-only positions) constraint. We offer a convex second order cone formulation that scales well with the number of assets and explore solutions to the problem in different settings. In particular, the problem is solved on a few practical cases - on equity and bond asset allocation problems as well as formulating index constituents for the NASDAQ100 index, illustrating the benefits of this approach.

Full work available at URL: https://arxiv.org/abs/2210.00969

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zbMATH Keywords

asset allocationportfolio optimizationportfolio allocationrisk budgetingrisk parity

Mathematics Subject Classification ID

Quadratic programming (90C20) Applications of mathematical programming (90C90) Portfolio theory (91G10)

Cites Work

• Title not available (Why is that?)
• Computing a nearest symmetric positive semidefinite matrix
• Risk parity portfolios with risk factors
• Introduction to risk parity and budgeting
• Equal risk bounding is better than risk parity for portfolio selection
• Cardinality-constrained risk parity portfolios
• Long-only equal risk contribution portfolios for CVaR under discrete distributions

Cited In (1)

• Forecasting compositional risk allocations

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