A1268
Title: Risk budgeting portfolios for general risk measures
Authors: Pierpaolo Uberti - University of Milano-Bicocca (Italy) [presenting]
Claudia Fassino - University of Genova (Italy)
Abstract: Given a reference risk measure, the risk budgeting portfolio is defined as the allocation in which each asset contributes a predetermined share to the total risk. This research introduces a novel approach, distinct from those previously proposed in the literature, for the computation of the risk budgeting portfolio. Assuming the existence and uniqueness of the risk budgeting portfolio, a Cauchy sequence is constructed within the simplex, whose limit coincides with the desired portfolio. This construction enables the development of an efficient algorithm that circumvents the need to solve auxiliary optimization problems, which are often computationally demanding and less transparent in the context of decision theory. The proposed algorithm is compared with standard optimization-based methods commonly used in the literature. From a theoretical standpoint, the Cauchy sequence is shown to induce a mapping for which the risk budgeting portfolio represents a fixed point. Consequently, sufficient conditions for the existence and uniqueness of this fixed point can be applied. The methodology is formulated for a general class of risk measures and is illustrated in detail for the case of standard deviation.
