Elisabetta Cagna ( Symphonia SGR), Giulio Casuccio (Fondaco SGR)

“Risk Parity Portfolios Using Shortfall Risk”

(at Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche, classroom 1, corso Unione Sovietica 218 bis)

organised by CeRP-Collegio Carlo Alberto and CINTIA

Abstract

In recent years financial markets have been characterized by high volatility and the issue regarding how to create truly diversified portfolios has prompted great interest. Among all the proposals in the literature, this paper focuses on two of them, the Equally Weighted strategy, presented by De Miguel et al.(2009), and the Equally-weighted Risk Contribution strategy, suggested by Maillard et al.( 2009). Both strategies create diversified portfolios. While the EW provides diversification in terms of capital, the ERC is able to diversify the portfolio in terms of risk. We implement the ERC strategy using the expected shortfall as risk measure. The expected shortfall risk contributions are computed through a non-parametric approach which, starting from the historical observations of the returns, is able to generate estimates less related to the historical market trends via the bootstrap. The ex-post performance analysis also accounts for realistic transaction costs.